How Much Does a New Car Depreciate After Buying It?
A new car is generally a very poor investment. Rather than appreciate in value over time, most cars depreciate as they age and their drivers put more miles on them, causing the car to wear down. While nearly all cars depreciate gradually over time, new cars experience a sudden, rapid depreciation immediately after the car is purchased. According to the financial website The Motley Fool, new cars lose an average of 20 percent of their value in their first year.
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Immediate Depreciation
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The minute a driver drives a just-purchased car off the lot, the car loses a large chunk of its value. Instead of being worth its market price, this almost new car is now worth its wholesale price. According to the financial reference website Bankrate, this is because, after a car has been purchased, the dealer will repurchase it only at a wholesale price. However, you might be able to fetch slightly more for the car on the used car market, although not the full market price.
First-Year Depreciation
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How much value a car loses its first year will vary. According to Bankrate.com, a good rule of thumb is that a car will lose between 15 and 20 percent of its value each year. However, according to the Motley Fool, a new car can lose up to 40 percent of its value after a single year.
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Gradual Depreciation
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After the first year, the rate at which a car depreciates will slow. In the second year, the car will generally lose about 15 percent of its value, while in the third and fourth years it will lose slightly less. However, this adds up. According to Money Zine's depreciation calculator, a new, $20,000 car will, on average, lose almost $9,000 in value in three years.
Different Rates
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According to Bankrate.com, different makes and models of cars have different rates of depreciation. Some cars are known for holding their value better than other cars. These different rates of depreciation are based on several factors, including variable demand for different kinds of used cars, and the cars' durability. The publications Consumer Reports and J.D. Power & Associates regularly rate the depreciation of different cars over time.
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