Depreciation, in technical terms, is the systematic allocation of expenses over a period of time. What this implicitly means is that an asset’s value decreases over time. There are different causes of depreciation, perhaps due to obsolescence or wear and tear. Amortization and their rates are especially evident in cars used for sale. Here is what you need to know about car depreciation.
How Does It Happen?
The leading cause of depreciation in cars is through its usage. It develops signs of wear and tear over time. Second-hand vehicles are already depreciated because they have already been used in the past.
Another cause is a fall in demand due to obsolescence. A limited market for your vehicle will cause it not to cost the same as before, reducing its value through impairment.
When Will It Start Depreciating?
Numbers show that the car will depreciate the most during the first year. There are three prices to be aware of. The wholesale price, also known as the factory price, the suggested retail price, which is the what the manufacturer thinks it is worth, and the retail price, the cost of the car at a dealership.
If bought at a dealership, there will be a significant markup, and with the additional fees and taxes it entails, the car has already depreciated by the amount of markup and fees. This is why some people opt for cars used for sale to escape the burden of depreciation.
Factors That Affect Resale Value
If you want to sell a second-hand vehicle, then sell one that depreciates at a low rate. Brand and mechanical performance determine, to a large extent, your car’s resale value. The more brand repute and car performance, the lower the depreciation rate, allowing you to resell the vehicle at a relatively higher price.
Other things that affect resale value include add-ons and features, car appearance, and car demand. Try to balance these factors to maximize your car’s resale value.
How To Reduce Depreciation
Research resale values. If you are buying a car with a plan to sell it in the near term, then it pays to do your research.
Taking care of your automobile never fails. A car well taken care of will still net a substantial amount during resale. Fix the conditions of your vehicle right away after seeing the first signs of problems.
Avoid the old designs. Technology and creativity are advancing; no one will want to buy old models, even at a reduced price. Early models will not get reasonable resale offers.
Depreciation is inevitable and oftentimes significant, but it is not always harmful and damaging. Wise decisions, and taking care of what you bought, dramatically helps in lowering depreciation charges. Remember to have this charge in mind when purchasing your vehicle.