I Lose HOW MUCH in One Minute?: New Car Depreciation
Unless money isn’t a concern of yours, choosing between a new and used car is an important decision. New cars do tend to offer appealing financing options such as Toyota’s 0% financing promotion for well-qualified buyers, but also comes with a higher price tag. (Although we’ll talk about why you should skip financing, and instead buy your car in full in another article).
So what’s the price difference between a new and used car? To answer that, we have to look at what determines the car’s price.
When you purchase a new car, you will likely be paying the “sticker price” or MSRP. The MSRP, or Manufacturer’s Suggested Retail Price is quite literally, a made up number from the manufacturer. “Deals” that you recieve on the MSRP is well within the manufacturer’s “buffer zone” to make it appear like you are getting a good deal.
Once you purchase the car and drive it off the dealership, it is no longer a “new car”, and will face depreciation, or lose value. There are many reasons for depreciation such as miles driven, years owned, repairs, even paint color (Gold cars are unpopular, and therefore depreciate faster). However, as soon as you drive off the parking lot, the car will immediately lose 10% in value, and drop to wholesale value.
Following the first year, the car will continue to depreciate exponentially; losing more value at the beginning of its life. The table below outlines how much value the car loses in the first 5 years. Feel free to check out this calculator to find how much a car will depreciate by model.
So, what does this tell us? Buying a car that has been owned even for ONE minute will be 10% less than a brand new car. One year? 20-30%.
However, the car’s value isn’t the only factor when it comes to the cost. New cars tend to have higher insurance premiums as well, and that monthly cost of even $100 can, and might drill a hole in your pocket. So, even with the more appealing financing options, a new car will just flat out be more expensive than the used car option.
However, don’t be discouraged at the thought of a used car. In fact, buying a used car might allow you to gain access to high end finishes and car models at a fraction of the price.
If you’re interested in a guide to Buying a Car (new and used), answer the Twitter Poll below!