Auto Depreciation

understanding how leasing works

about auto leasing

So What is the Value?

So what is the value of a new car? You can lose thousands once you drive your new car off the dealer's lot.

Why? Because the price you paid for the car is the retail price (not counting the taxes and licensing that are sunk costs).

If you drove that new car back to the dealer, the most the dealer will pay is the wholesale price (the same price he would pay the manufacturer).

So your value drops instantly from the retail price to the wholesale price once you take possession. That drop could be in the thousands depending on the type of car and model.

So why not buy used?

You will be paying for the market value of the car instead of dealer markup. Some 1 year-old cars are great values that can save you thousands in financing costs.

about auto leasing

How Depreciation Works

Beware of depreciation (which can vary by make and model). A average car loses about 15-20 percent of its value each year.

For example:
you purchased a new car for $30,000. Let's say this particular model loses 15% value each each.

  • At 1 year old, the car value is worth $25,500 (85% of $30,000)
  • At 2 years old, the car value is worth $21,675 (85% of $25,500)
  • At 3 years old, the car value is worth $18,424 (85% of $21,675)
  • At 4 years old, the car value is worth $15,660 (85% of $18,424)

It loses almost half its value after 4 years. Again, depreciation vary by make and model.

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