Car Buyers Unaware of Depreciation Rates
September 28, 2007
The most expensive part of owning a car is the depreciation on your vehicle as it sits in your driveway. Yet, a new and exclusive study by consumer automotive web site BuyingAdvice.com shows that over 70 percent of online buyers polled did not know the anticipated vehicle depreciation rate of the model they were considering.
A recent study conducted by AAA puts the average annual cost of depreciation on a new vehicle at $3,392 per year. But there can be significant variations depending on the model, mileage and condition.
The steepest period of depreciation is in the first year of ownership, when the "new" vehicle becomes "used". Most leading experts put the average first-year depreciation somewhere between 15 and 20 percent of the price of the car. After that, a vehicle will lose around 10 percent of its value annually for the next four years.
The speed of depreciation only becomes important for most owners when they decide to sell their car, often discovering the car is worth less than the amount of loan outstanding.
Lately, the tightening economy is being reflected in an increase in the length of car loans. The new poll from BuyingAdvice.com shows that instead of making a larger down payment which would keep the loan amount more aligned with the true value of their cars; buyers intend to keep their new vehicles longer than they have in the past. While 15 percent of the sample said they had owned their last car less than three years, only 8 percent said that they expected to own their current car for less than three years.
Recent industry figures show loan terms are up from an average of 62 months in 2004 to 64 months in 2006, while down payments, as a percent of transaction price, have declined from 19.3 percent to 16.3 percent over the same period.
Almost ninety percent of respondents to the BuyingAdvice.com study said they expected to pay off their car loan before changing vehicles. And almost sixty percent of new car buyers said that they expected to own their new vehicle for over five years.
The 1500 people surveyed for the study were drawn from the 50,000 people each month who request price quotes from the consumer advice web site and all stated that they were within 30 days of making a new car purchase.
