How Does Vehicle Depreciation Work
What Is Vehicle Depreciation?
In short, depreciation is the decline in the value of a vehicle from the time you bought it. It is the difference between the purchase price and the selling price. Not all cars have the same rate of depreciation but most cars depreciate at a rate of about 15 – 30% a year. However, the first year of ownership accrues the highest rate and decreases as the car gets older. In general, you can expect your vehicle to halve in value after five years of owning it.
Asset Or Liability?
Certain purchases we make accrue in value with time. They either improve with age or they become more sought after, therefore making them assets. Unfortunately, your vehicle can only be classified as an asset if its current value is greater than what you owe on it, and even then, it is a depreciating asset. This means the car loses value the moment you drive it away from the dealer.
In addition to this, owning a car comes with ongoing expenses such as fuel, insurance, maintenance, and repairs. Which is why it is more often considered a liability than an asset.
What Affects A Car’s Depreciation Rate?
The following factors will increase the rate of depreciation:
- Condition – Any damage or wear and tear
- Mileage – A high odometer reading
- Warranty – A short warranty period
- Service – An incomplete history
- Reputation – Cars believed to be unreliable
- Ownership – Too many previous owners
- Age – Older models
- Economy – High fuel consumption
- Size – Big luxury cars with higher expenses
- Demand – Low demand, high supply
- Modifications – Spoilers and other non-standard fittings
How To Beat Vehicle Depreciation
Depreciation is inevitable, but since owning a vehicle is mostly a necessity in South Africa, we can try to minimise the effects. Especially if you’re buying a used car, begin by choosing a quality used car that will hold its value. Take heed of the list above and then consider the following:
- Buy as new as possible with the lowest mileage.
- Avoid outrageous shades -neutral colours stay popular for longer.
- Features such as central locking, safety, air conditioning, CD/MP3 player, etc. improve resale value.
- Service regularly.
- Maintain and keep the body in good condition.
In general, it makes sense to buy a quality used vehicle with low mileage. But this becomes even more important when you begin to consider depreciation values and what your vehicle will end up being worth when you eventually decide to sell it. That is why Auto Pedigree offers more than 4,000 low-kilometre, quality used cars with full-service history and 116-point quality check.
Disclaimer: This information is for educational, or entertainment purposes only. It must not be construed as advice, legal, financial, or otherwise. We do not make any warranties about the completeness, reliability, and accuracy of this information. The views and opinions are those of the author and not necessarily those of Auto Pedigree.