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Paying off your car loan, making sure your car is insured, and covering any repairs or maintenance that might be necessary are some of the many financial responsibilities of owning a car. Another budget killer that many consumers often forget to take into consideration, but definitely should, is the cost of depreciation. This is particularly true for newer cars, as their rate of depreciation is a lot faster than a used car. Thankfully, there are numerous ways you can help reduce your car’s depreciation. 

What Is Car Depreciation? 

Car depreciation is the measure of how quickly a car loses its original value. A brand-new car can lose around 20% of its value as soon as you buy it and drive it off the lot. This is because the dealership can no longer sell it as “brand-new”. Your car can also depreciate from things like wear and tear, accidents, and of course age. 

Check out these cars with high trade-in value.

The depreciation process is nonlinear. Your vehicle loses its first bit of value – about 10% – when you first drive it off the lot. After one year, the car is worth about 80% of what you paid for it. In the first two years, the car loses about 40% of its value, but over the next three years, it only loses about 20% more of its original value.

Lookout Tips On Buying A Car From A Dealership

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Lookout Tips On Buying A Car From A Dealership
Tips On Buying A Car From A Dealership

Ways To Reduce Your Car’s Depreciation Before You Buy

You don’t have to wait to own your car to take action to reduce depreciation. You can reduce your car’s depreciation even before you buy it.

Buy A Pre-Owned Vehicle

Brand new cars can depreciate by over 30% in the first two years you own them, while pre-owned vehicles depreciate more slowly in the first few years you own them. This is because new vehicles are only considered “new” until they are driven off the lot.  As such, it can be smart to buy a slightly used car over a brand new one. Doing so will allow you to avoid the cost of the initial depreciation.  Moreover, pre-owned vehicles are generally still in good condition and can sometimes still be covered by factory warranties. However, it’s also important to understand that pre-owned vehicles start to depreciate quickly after about five years of ownership. This is because of the increased likelihood of mechanical issues and the expiry of factory warranties.

Thinking of buying a car, check out these car loans.

Choose A Popular Car Make

When purchasing a car, it’s best to choose one that doesn’t simply maintain its value over time, but one that is popular with the public. Buying a car with a mainstream make and model, such as a Honda Civic, will make it easier to sell in the future as it is a well-known car. Cars known for their safety, fuel efficiency, and reliability are other factors to consider when purchasing a car. These cars usually maintain their value and can come in handy if you ever decide to sell or trade-in your car.

Find out if you should buy a new or used car.

Choose A Common Car Colour

The colour of your car can impact the rate it depreciates. In general, standard colours like black, white, and grey retain value the best. As such, if you buy a car with a common colour, such as white or dark blue, you will have an easier time selling it. On the other hand, bold and bright colours such as yellow or lime green, while beautiful, are harder to sell due to the lack of buyers looking for such colours. 

Protect And Treat Your Vehicle To Extend Its Life

The price of your car is heavily influenced by its wear and tear. Rust, dents, cracks in mirrors and other forms of wear and tear can decrease the value of your car. Adding certain protective accessories can help combat this. This includes:

  • Floor mats to avoid stains associated with foods and drinks.
  • Rustproofing your car, especially if you live in a cold climate where it snows and rust is a common problem. 
  • Paint protection, which is an additional coating on your car that leaves it looking pristine for longer periods of time. 

By treating your vehicle, you’ll be able to maintain its value for a longer period of time, which in turn can lead to a buyer willing to pay more if you ever sell your car. 

Here are questions you should ask your dealer when buying a car.

Get An Extended Warranty

Extended warranties help to reduce depreciation because they can often be transferred to other people, so anyone buying your car might be covered. This warranty will offer some comfort to future buyers.

Ways To Reduce Your Car’s Depreciation After You Buy

Even if you take action to reduce your car’s depreciation before you buy it, there is still more you can do to reduce your car’s depreciation after you buy it.

Maintain The Car And Keep Maintenance Records

If you maintain your car by doing regular oil checks and keeping up to date with its services, your car will better retain its value. As such, it’s important to keep track of all your car maintenance and repair receipts. Being able to prove that you have regularly performed maintenance on your car will allow you to sell your car for more money. A buyer can see you took good care of the car and will have some peace of mind.

Learn how to better budget for a car.

Keep The Mileage Low

The more mileage there is on a vehicle, the higher the chance that it will need expensive repairs and maintenance. Keeping your vehicle’s mileage low lets sellers know that your vehicle is still in good health.

Drive Safely And Avoid Accidents

Not only do accidents require repairs and potentially create problems for your car in the future, but accidents and repairs that are reported to your insurance company are also added to your car’s history report. A potential buyer may be wary to buy your car if it has a long history of accidents and repairs.

Need money to cover an accident? Consider a car accident loan.

Keep It Clean

In general, a clean car will be a lot more appealing than one with stains and a funky smell. If you keep your car clean by regularly washing it, vacuuming it, and not smoking in it, potential buyers are more likely to take an interest in your car. It can also help your resale value by avoiding drinking, eating, or smoking in the car. If you have a pet, adding a seat cover is a good way to keep your car clean. 

Avoid Flashy Modifications

While suspension upgrades, turbocharge, and other flashy modifications may seem appealing, it may not suit everyone’s tastes. Unfortunately, not everyone likes flashy modifications on their car. If you modify your car, especially in a flashy way, it can potentially reduce the value of your car, making it hard to sell.

Frequently Asked Questions

Which cars retain their value the best?

Generally, the cars that retain their value the best are the most common makes and models. A car will depreciate quickly if no one wants to buy it.

How fast do new cars depreciate?

New cars depreciate by over 30% of their original value in the first two years of owning them. As soon as you drive a new car off the lot, it loses about 10% of its original value.

How do I avoid building negative equity?

Negative equity happens when your vehicle’s value is less than what amount you owe on your car loan. You want to avoid negative equity because it can make it harder to trade in or sell your vehicle. If you sell the vehicle for less than you owe, you will have to pay the difference. You can avoid building negative equity in several ways: 
  • Not buying a car you can’t afford. You might get stuck with negative equity if you finance a car you can’t afford. You should try to keep your car payments under 10% of your monthly paycheque.
  • Avoiding a long-term car loan. Longer terms mean higher interest payments, meaning you’ll be paying more for your car. Although a shorter term means higher payments, more of that money goes to the principal rather than interest.
  • Making a down payment. Because you are financing only part of the car’s value if you make a down payment, you’ll be less likely to build negative equity.
  • Not rolling over your car loan. If you combine a previous car loan with your new car loan, you’ll have to make larger payments, potentially bringing your equity into the red.
Lookout Are Car Dealerships Charging Canadian Consumers Hidden Fees?

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Lookout Are Car Dealerships Charging Canadian Consumers Hidden Fees?
Are Car Dealerships Charging Canadian Consumers Hidden Fees?

Bottom Line

No matter what you do, your car will depreciate and lose some of its original value. That being said, there are things you can do both before and after you buy a car to slow down the depreciation process and maximize your car’s resale value.

Matthew Taylor avatar on Loans Canada
Matthew Taylor

Matthew joined the Loans Canada writing team in 2021 while was finishing up a Bachelor's degree at the University of Saskatchewan. It was there that he discovered his love of writing. His work has appeared in several publications, including the Canadian Student Review and In his spare time, Matthew enjoys reading, geocaching, and spending time with his family and pets.

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