The Best Time To Buy And Sell A Used Car: Understanding Depreciation
Buying a pre-owned car for sale isn't the first choice for everyone, but it's definitely a smart move if you're cutting on costs. A used car isn't only cheaper than one that's fresh off the dealership; it can also be as dependable!
This happens because of a process called depreciation, and it can affect you whether you're buying or selling a used vehicle. To get a better understanding of this, go ahead and read on so you can use the process of depreciation to your advantage.
What is depreciation?
Depreciation is a normal process that happens wherein a property (home, vehicle, etc.) decreases in value. In this case, let's take a 3-year old car from Ford Philippines as an example and say that it's definitely less valuable than the brand new car that's parked in the dealership. As time flies by, the 3-year old car gets older and also depreciates in value. Depreciation doesn't happen in a straight line but in a curve instead.
What is the depreciation curve?
Among all other assets a person can own, vehicles are the fastest to depreciate. Once you take a new car out of the dealership and drive it around the block, its value has already dropped to 90%. After a year, your new car would only cost around 80% of what you originally paid for it.
This goes on and on that by the time your car reaches 3 years old; it will only be worth 58% of the original price. When your car turns 4 years old, the value drops to 49% and by year 5, it drops to 40%.
If you'll notice, the depreciation is non-linear. Your new car will drop 30-40% in value after the first 2 years. While when the 3rd year kicks in, the decrease becomes 20%. This can be used to your advantage.
When is the best time to buy a used car?
A tip when it comes to buying a Ford Escape is choosing a unit that's 2-3 model years ago. By doing so, you are avoiding the steepest climb in the depreciation curve. You would end up only paying 60-70% of what the original vehicle price but still get a reliable car with reasonable mileage.
When is the best time to sell a used car?
If you happen to buy a second hand Ford Escape that's around 2 years old, you would know by now that it has lost the most profitable part of its life and has now depreciated in value. If you're thinking of selling the vehicle, you should first think about when the best time would be to do so.
The answer is already stated in the depreciation curve we discussed earlier. When a car gets close to its 5th year, the selling price will drop because of the possible problems that may arise with the aging vehicle. For example, the car may now have mechanical problems and may require maintenance procedures like wheel alignment and oil change. The warranty may also start to lose effectiveness and you may need to get a new one suitable for your car's age.
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