How understanding car depreciation can save you money

Last updated on December 7, 2023

Buying a car is a big purchase, so you want to know that the vehicle you choose will hold its value over time.

While car depreciation is unavoidable, understanding its impact and implementing smart strategies can help to save you money in the long run.

Family loading items into a vehicle

Car depreciation is the decrease in the value of a vehicle over time. Another way to understand depreciation is the difference in value between the purchase point and the point you want to sell your car.

Generally, your new car begins to lose value as soon as you drive it off the lot. According to CarChase’s Car Valuation Guide, your car could lose up to 58% of its initial value in the first three years, depending on its make and model. This is due to a range of reasons, including wear and tear, market demand and the introduction of newer models.

Depreciation slows over time, so if you plan to keep your vehicle long-term, this can be less of an issue.

There are several factors that can influence the rate of car depreciation, including:

  • The make and model of your car: Luxury cars can experience faster depreciation, while brands popular for reliability may hold their value for longer. Electric vehicles may have different depreciation patterns due to advancements in technology.
  • Fuel efficiency: An increasingly popular feature of newer vehicles, fuel efficient cars are cost effective, and this can improve their resale value.
  • Condition of your vehicle: The condition of your vehicle and its maintenance history is an important factor. Regularly servicing and maintaining your vehicle, and keeping detailed service records, can slow depreciation. Read about how car servicing can help you get the most out of your car.
  • Mileage: Generally speaking, a car with lower mileage tends to retain its value better than a vehicle with high mileage. This is because the higher mileage vehicle may have experienced more wear and tear and may have less longevity.
  • Market demand: The introduction of new models, designs, or technology can mean that a previous model may depreciate at a quicker rate. Other considerations include long standing preferences for the country you live in, such as preferences for automatic or manual transmission vehicles.

When it comes time to sell your car, there are a few strategies that can help to increase its resale value:

  • Keeping detailed service records, addressing any mechanical or cosmetic issues, and maintaining a clean and presentable vehicle are all important factors.
  • Making minor upgrades, for example replacing the tyres or updating a technology feature, can also make your car more appealing to potential buyers.
  • Researching the market and setting a competitive price can also help you maximise the value of your car.

Calculating motor depreciation rates can help you understand the financial impact of owning a car. By understanding how quickly your vehicle is losing value, you can make informed decisions about when to sell or trade-in your car.

It's important to use any online tools and deprecation calendars with caution. While they are helpful starting points, these tools should always be considered alongside independent professional advice and market research.

Car depreciation can have implications for tax, especially if you use your vehicle for business purposes.

It’s important to familiarise yourself with the tax rules related to car depreciation and get specific advice for your circumstances through a registered tax professional.

Unlike a house, a car is a depreciating asset, meaning that from the moment it leaves the lot or showroom, its resale value starts to drop.

While online tools and calculators can be a helpful starting place, remember to also seek professional advice before making any decisions about car purchases, valuations or sales.

By educating yourself on car depreciation, implementing strategies to reduce it, and staying informed about market trends, you can make smarter decisions about car ownership and potentially save money in the long run.

This article has been prepared by Allianz Australia Insurance Limited ABN 15 000 122 850 AFSL234708 ("Allianz"). In some cases, information has been provided to us by third parties and while that information is believed to be accurate and reliable, its accuracy is not guaranteed in any way.

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