| Residual Value, Depreciation and Your Used Car | | | | cars that have amassed more than 30,000 miles per |
| Whether you realize it or not, a vehicle’s residual | | | | year will be worth less. |
| value should have a large effect on your used car | | | | Why does mileage matter so much? Every part on a |
| shopping. Everyone knows a brand-new car can lose | | | | vehicle has a life expectancy, usually measured in |
| more than 30 percent of its value in its first year | | | | terms of miles. The more time a car or truck has |
| – it’s why smart shoppers buy used – | | | | spent on the road, the more of that life expectancy |
| but what about the remaining fraction? What a car | | | | has been used up. Even if a car is relatively new, |
| retains in worth is called residual value. Understanding | | | | higher miles mean you can expect to replace more |
| how certain factors add or detract from that worth | | | | parts of the vehicle sooner than its low-mileage |
| can help you get the absolute most out of your used | | | | brother. |
| car both at buying time and when it comes time to | | | | Vehicle Make |
| send the vehicle on its way. | | | | This one has as much to do with individual |
| Residual Value is just the opposite of depreciation. | | | | automakers’ performance in terms of reliability |
| That is, what your car looses in value over time is | | | | and build quality as it does the public’s perception |
| defined as depreciation and what it retains is called | | | | of those attributes. Typically, Japanese and German |
| residual value. While these terms are often associated | | | | makes fare better than their domestic counterparts |
| with leasing, they’re just as pivotal to the | | | | in returning higher residual value. It’s true that by |
| used-car buying process. So what determines how | | | | and large, carmakers like Honda, Toyota, BMW and |
| much a car keeps or looses over time? Loan officers | | | | Mercedes-Benz have built their names on high-quality, |
| use complex formulas to determine a vehicle’s | | | | long-lasting vehicles, and those reputations play a |
| depreciation based on innumerable factors that | | | | huge role in how much buyers are willing to pay for |
| decide how much a vehicle looses in a typical year of | | | | used versions. |
| use. Rather than slog through all of those, let’s | | | | At the same time, General Motors, Ford and Chrysler |
| take a look at the four most prominent portions of | | | | have all made huge advances in terms of quality and |
| depreciation in no particular order. | | | | reliability. Unfortunately, those companies’ |
| Age | | | | reputation for building vehicles that don’t last as |
| Like it or not, every car loses some percentage of | | | | long as their import counterparts still haunts them |
| its value as time passes. The funny thing is, the | | | | today, resulting in lower average residual value. That |
| amount of that loss changes over time so long as | | | | means if you’re careful, you can find great |
| the rest of the factors on our list stay within | | | | domestic-made used vehicles with plenty of life left in |
| acceptable parameters. In the first few years, a car | | | | them for far less than a similar import model. |
| stands to lose the largest portion of its value, but by | | | | Vehicle Type |
| year three the level of depreciation levels off | | | | Not too long ago, it was nearly impossible to find a |
| somewhat. | | | | good, used SUV for a smart deal. Now, with last |
| How does that effect your used-car buying? While | | | | summer’s astronomical gas prices and a new |
| it’s tempting to jump in on a used model from | | | | focus on green cars and trucks, driving a big |
| this or last year to get all of the great tech and | | | | body-on-frame SUV is as unpopular as it is impractical. |
| advancements manufacturers boast about, those | | | | The result is a surplus of used SUVs and truckish |
| vehicles still have a substantial amount of depreciation | | | | people-movers that would have been the envy of |
| to go through. That is, their residual value will continue | | | | the neighborhood not five years ago. Needless to |
| to plummet after you sign the title. Some buyers | | | | say, those SUV’s have suffered rapid |
| may see that as the price you pay for the latest and | | | | depreciation due to a change in buyer tastes. |
| greatest, but if you aren’t careful, you could | | | | It’s important to keep an eye out for these |
| wind up owing more on your car loan than the | | | | trends when you’re picking up your next used |
| vehicle is actually worth. Not a good spot to be in. | | | | vehicle. It may be tempting to jump into a particular |
| Mileage | | | | type of car or truck because of a great deal on the |
| In general, anywhere from 10,000 to 30,000 miles is | | | | window, but doing so could put you into |
| an acceptable amount of mileage for a vehicle to | | | | transportation you can’t easily get rid of when it |
| accrue per year. Anything less than that and | | | | comes time to upgrade in a few years. If a car or |
| whatever vehicle you’re interested in will have | | | | truck has depreciated significantly in a short period of |
| likely depreciated less than its higher mileage | | | | time, you may be better off looking for something |
| counterpart. Of course, the flip-side of that coin is | | | | else. |