Cars are not investments. The moment you drive them off the lot, they begin to lose value, although some lose their value faster than others. That loss in value over a car's useful life is called depreciation. It is one of the things that attracts some buyers to the used-car market. You can purchase a nearly new car for much less than a new car, because new cars lose so much value early on.
The First Year
A car's depreciation during the first year will be the steepest. Buyers purchase cars at retail price, but once the car is driven off the lot, it is only worth its wholesale price. This is the amount a dealer would buy it for. On average, cars lose more than 20 percent of their value in the first year. Some may lose as much as 40 percent, according to Fool.com. This means a $20,000 car will be worth around $16,000 once it is purchased.
Rule of Thumb
Once a car is off the lot and considered used, the general rule of thumb is that it will lose 15 to 20 percent of its value each year, according to Bankrate.com. This does not mean that the car will lose the same amount of money each year. The depreciation is based on the previous year's value. A two-year-old car will be valued at 80 to 85 percent of its one-year-old value. A three-year-old car will be worth 80 to 85 percent of its two-year-old value and so on and so on.
Holding Onto Value
If you own a vehicle that loses value quickly, it means that the car will be of little help to you as a trade-in. One thing that will help you maintain the resale value of your car is to make sure you maintain it properly.
Minimizing Depreciation
When buying a car, stay away from wild colors. You may like the color, but it may turn off other buyers. Look for brands that have a reputation for quality and good resale value. BMW, Honda, Acura and Volkswagen all have higher resale values that competing brands and models, according to MSNBC. Consumer perception helps these brands maintain their resale value as well as actual quality.
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