Depreciation is the worst thing any buyer likes to hear. It is defined as the reduction in value of an asset due to usage, and passage of time. It usually starts from the moment you purchase an item and take it home. So when you buy a car, the minute you drive it off the lot, it will be worth less than what you just purchased it for because of its usage. When it comes to assets, cars are the absolute worst. Their depreciation rates drop just as quickly as a Major League curveball. Just with a blink of an eye, you will be fooled to see how fast depreciation can actually happen.
The ‘law’ of depreciation says that once you purchase your car it will lose 10% of its value when you drive it off the lot. After owning it for a year, it is thought that it will have lower in value due to reports of how long the parts will last, how well the body holds together, and how much maintenance it needs. It will then lessen in value by almost half in 5 years, and again in 10 years. Depreciation denotes how much the car will be worth after its natural wear and tear, and it ranges from cars that sit in the garage that are in mint condition, to cars that are used for the average every day commuter.
From another perspective, think of it this way; after you have driven the car for a few years, it starts to wear out. As parts on the vehicle wear out and their life expectancy drops, the value of the vehicle, overall drops. If you bought a car for $15,000 now, in 10 years it would be worth about $2,500. Unless you have never driven it and it is still in mint condition, but you still won’t get back what you paid due to production of better cars over that time. A car that has never been used isn’t affected by depreciation as much as a vehicle that is used regularly. In fact, depending on the rarity, an un-used or most still new vehicle will double in value, which is called Appreciation. This all relates to supply and demand.
This is the exact reason why some Antique Cars go for so much money, because of its rarity. A car will originally be sold for $2,500 when purchased, and now it can sell up to around $30,000. Anybody would take that investment. Appreciation can also be effected when you upgrade and take care of your vehicle better. It is still affected by depreciation at that time, but the rates at which the value will drop over time lessen when you upgrade and properly maintain your car.
You will see the most dramatic depreciation drops when your vehicle has lost its vital engine parts, or has had massive body damage. A car that would have a value of $2,500 in 10 years will only be worth a couple hundred dollars if it remains to be in bad shape. When you don’t maintain your car properly, the value of the car will depreciate as the life expectancy will depreciate.
Maintaining your vehicle to the max is the only way to avoid dramatic depreciation, however, you really can’t avoid it all together. Even if you park it in a garage, it is still lower in value than when you left with it off the lot. It would take at least 20 years for your car to become a classic, while also have been staying in pristine condition.