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Is Vehicle Depreciation Good or Bad?


You base most of your financial decisions on the purchase price of the item you are buying.  If it is a major purchase that you must pay for in installments, then you also think about how much you will have to pay for each monthly installment.  Most of the time, we don’t give much thought to the resale value of something we already own.  In fact, when you trade in your car, its value might have decreased a lot since the time you bought it, even if you have owned the car for such a short time that you still owe money on the auto loan.  Appreciation is when the value of an item increases after you buy it; this happens with real estate and, one hopes, with memorabilia and other collectibles.  Assets that are more useful and desirable when they are new depreciate over time, which means that their value decreases after you buy them.  If you own a car, its resale value is probably considerably less than the sticker price.  A Plantation debt lawyer can help you make financial decisions based on the current resale value of your car.

Vehicle Depreciation Is a Bummer

You have probably heard the often-cited statistic that a car loses half of its value as soon as you drive it out of the dealership parking lot.  It doesn’t actually lose quite that much; most cars have a resale value of about 80 percent of their original purchase price if you trade them in a year later.  Vehicle depreciation is the biggest bummer when you are trading in your car before paying off your auto loan in full.  You might be unpleasantly surprised how much you still owe on the principal balance of the loan; a large portion of your car payment has been going to interest.  Therefore, when you trade in your car, most of the money you get goes to paying off your existing car loan, and you only get a paltry sum to put toward the down payment on your new ride, leaving you with another several years of hefty car payments that only make a small dent in your loan balance.

When Can Vehicle Depreciation Work to Your Advantage?

In some cases, the fact that your car’s value has decreased can help put you in a stronger financial position.  For example, if you use your car for business purposes, then its depreciation helps to reduce your tax obligations.  Likewise, if you are trying to qualify for debt relief options where you are only eligible if the value of your assets is below a certain amount, then your car’s depreciated value works to your advantage.

The Most Valuable Car Is the One That Still Works After You Have Paid Off Its Loan

Cars are not Beanie Babies.  As long as your car is still working, it is usually a better financial choice to keep driving it.  When your loan is paid off, then even a modest value on your car puts you at a financial advantage when you sell it or trade it in.

Work With a Debt Lawyer About Debt Relief for Car Enthusiasts

A South Florida debt lawyer can help you make the best decision about trading in your car.  Contact Nowack & Olson, PLLC in Plantation, Florida to discuss your case.



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