There is nothing like the feel of a new car. The shine, the new car smell, the latest features…irresistible. Of course, with all of the shiny newness comes a drawback. After the first year, you've lost 25% of that new car, truck or SUV's value.
If you aren't able to make a down payment that covers that initial hit in value, you could find yourself in a frustrating situation if you need to sell or trade it in after a couple years and still owe money on the car loan. So, what causes this drastic drop in value?
Why the Sudden Drop in Value?
This reduction in value is known as depreciation, and pretty much everything you buy suffers from it. In the case of automobiles, new models are rolled out, and advances in driving technology are made.
Consider the price you paid for the new car. That was the retail price. Dealers don't sell their cars at the wholesale price because they need to make a profit. This means the moment you drive the car off the lot, its value is instantly reduced to the wholesale price. You have already lost thousands due to that one factor alone.
Also, consider that the average annual depreciation rate is anywhere from 10-15%, so when you add that on to the drop from retail to wholesale, you get a nearly doubled loss in value in the first year.
That explains that first year, but what about the remaining time of vehicle ownership? Well, that's where the age, wear and tear, and market conditions come into play. So, depreciation continues on throughout the life of the car. There really is no stopping it.
Other Options to Consider
If you have bad credit, or a lower income, purchasing a new car may not be the best move for you at the present time. While used cars will still depreciate in value, the greatest depreciation occurs during the three years of ownership. As a result, these vehicles have already taken the biggest hit to their retail price.
While a down payment will certainly help mitigate the drop in a new car's value, think about what that could do for a used car. A quality used car plus a down payment could result in a very affordable car payment - possibly even with a lower interest rate.
If you need affordable car financing, Auto Credit Express can help. We have found millions nationwide the car dealers that could approve them. We can do the same for you too. All you need to do is complete the fast, secure and easy online application. From there, we will arrange a time for you to meet the dealer best suited to handle your unique situation. Start today!
