If you’re interested in buying a used car, you’re making a good choice. A late-model used car is nearly as reliable as a brand-new vehicle, and it’s much less expensive.
Why? Depreciation! New cars depreciate (lose value) much faster than used vehicles – so you can get a used vehicle for a much lower price.
But when is the best time to buy a used car to get the best deal – and when should you sell it in order to get the most for your investment? We’ll answer these questions – and more – in this handy guide!
What Is Depreciation?
Depreciation is the process by which an asset loses value. A car that’s 5 years old is worth less than a car that’s brand-new and sitting on the lot – that’s obvious.
Depreciation describes the exact process by which this value loss occurs. As time goes on, your car depreciates further, and its value is decreased.
But here’s the thing – depreciation is not a straight line. It happens in a curve – and that curve is steepest for new cars.
Understanding The “Depreciation Curve”
New cars depreciate faster than any other asset. The steepest drop is when you first purchase your car and drive it off of the lot – its value drops to about 90% of what you paid for it.
Within a year, a new car will have depreciated even more, and will be worth around 80% of the money you paid for it.
This process will continue in a non-linear fashion – by year 3, a new car is worth only 58% of its original purchase. By year 4, 49%. By year 5, 40%.
As you can see, this process is nonlinear. In the first two years, most cars lose about 30-40% of their value – but the decrease over the next 3 years is only about 20%.
This means that you can use the depreciation curve to your advantage.
The Best Time To Buy A Used Car – 2-3 Model Years Before The Current Year
If you can buy a certified pre-owned vehicle, or a vehicle that has come off of a 2 or 3 year lease, you can avoid the steepest part of the depreciation curve – and get a much better deal on your used car.
You will only pay about 60-70% of the cost of a brand-new car, and still get a highly reliable vehicle that’s covered by the factory warranty.
The Best Time To Sell A Used Car – Sell It When It’s 5 Years Old
So, you’ve purchased a used car that’s 2 years old, and has already lost the largest portion of its value due to depreciation.
It’s time to start planning for the future. You might be thinking “when is the best time to sell this car, and get the best value for it?”
The answer is, again, given to us thanks to the depreciation curve. Counterintuitively, depreciation becomes steeper after a car is about 5 years old. This is because mechanical issues are more likely, and factory warranties may be running out.
If you don’t plan on driving your car forever, it’s in your best interest to sell it when it’s about 5 years old. Again, you will avoid the depreciation curve, and get the most value for your money.
Understand The Depreciation Curve – And Get A Great Deal On A Used Car!
If you are thinking about buying a brand-new car, think again. By choosing a car that’s just a few years old, you can save up to 40% by avoiding the depreciation curve – and still get a great vehicle.
Not sure where to start when it comes to used car shopping? Come to Ride Time in Winnipeg! We have a great selection of late-model used cars, offered at reasonable rates.
You can browse our stock in our Winnipeg showroom, or online from anywhere in Canada – we deliver all across North America, and internationally!
Start shopping now, and use depreciation to your advantage to get a fantastic deal on a high-quality used car from Ride Time.