Car depreciation: How does it work?

Like taxes and clogged shower drains, car depreciation is a fact of life that we all wish we didn’t have to deal with.

Fortunately, there are ways to keep depreciation from causing too much of a headache – first by making smart decisions during the purchasing process, then by making smart decisions as you look after your vehicle.

What is car depreciation?

Essentially, car depreciation is where the value of your vehicle drops over time after you purchase it new. It happens with many consumer goods, such as furniture and appliances, and can happen at different rates.

For example, the Australian Taxation Office offers three different depreciation rates for your car, dependent on the year it was bought new. Cars purchased before June 30 2002 depreciate at a rate of 22.5 per cent, those bought between then and May 9 2006 drop at a rate of 18.75 per cent, and anything newer than that depreciates at a rate of 25 per cent per year.

It’s important to keep in mind that these values are only estimates, and there are certainly ways to reduce (and even speed up) depreciation.

Ways to reduce car depreciation?

Minimising car depreciation starts before you even make the purchase. Firstly, look for a model that’s going to be in demand in the future. For example, a blue, white, or black car is going to be more sought after than a bright yellow or pink one. Also look for cars that are low on fuel consumption and are easy to find spare parts for (such as popular makes like Toyota).

Once you own the car, looking after it as best you can will help avoid depreciation and maximise the resale value once you’re ready to sell. Ensure you have your car serviced regularly – and hold on to records – to keep it in top shape. Repair any damages such as paint scratches or bent bumpers right away, and keep the interior in good shape by banning muddy shoes and smoking in the vehicle.

When it comes time to buy a new car again, you should be able to gain as much as possible back by selling your old car for a good price. If you have your eye set on a particular new model and need some help getting your fund over the line, a car loan from Beyond Bank could be just what you need.