How Does Car Depreciation Work? All Your Questions Answered

Depreciation is part of owning a car and it’s easier to make your peace with it and understand it than it is to fight it. There are things you can do to reduce depreciation but today, we’re concentrating on how depreciation works.

We’re going to discuss how cars depreciate and what influences depreciation.

The following are all factors in car value depreciation:

1. The General Condition of the Car

The number one influence over a valuation is the car’s condition. If you can keep it in excellent condition, it will depreciate much slower.

That’s because the better a car looks, the more likely it is to sell. The more likely, the higher the value.

2. The Age of the Car

With the exception of classics and vintage cars, the older the car, the lower the value.

This is because the model now probably looks dated, it won’t have the latest technology, parts may not be so readily available, there is no more warranty, it may not be efficient, it may not have the latest safety tech and it may have a lot of miles.

All these feed into the desirability of the car and it’s eventual car value depreciation.

3. The Mileage

A car’s mileage has two effects. One, it means the car will need more maintenance and/or replacement parts. Two, it’s less desirable, so is worth less.

The major components of a car can travel a million miles or more if looked after well. Other wear parts or soft parts cannot.

The more miles those parts have travelled, the more likely they are to need repair. Which costs money. This is mainly why higher mileage cars are worth less.

4. Brand Cache and Reputation

Some car makers are known for quality and longevity while others are not. This all feeds into the perceived value of a car.

Those brands known to be able to drive forever with minimal trouble will depreciate slower while those known to be troublesome once they age, will depreciate faster.

A little research will soon show you which is which.

5. Demand

Demand for a particular make or type of car also influences depreciation and future value.

Crossovers and SUVs are in demand as everyone is shifting to them. So they can be worth more.

Sedans and hatchbacks are also in demand in certain sectors of the market because few are being made and not everyone wants an SUV or crossover.

These trends shift constantly, so are an unreliable metric, yet still needs to be borne in mind.

There’s more that goes into valuation when you sell your car to a dealership but you get the idea. It’s a price made up of a multitude of things, including market forces, which is too big a subject to get into here!

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