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We’ve all heard of the term depreciation. It applies to property, assets, and of course cars, but how does depreciation change the value of a car? Does it work differently than with a house? Is a car a sound financial investment? We will answer all these questions and more right here.

New cars vs used cars

Nearly all cars will depreciate until they are nearly worthless. What’s more, they typically take their biggest value hit in their first year of ownership. This is good if you love buying used, but not so good if you are looking to buy new. In fact, a new car will typically lose nearly 20% of its value in the first year. This means a $20,000 car becomes a $16,000 car.

This depreciation does not affect all cars equally. Some cars hold their value really well, though they still typically lose value every year. On the other hand, some cars lose value rather rapidly. This especially applies to luxury vehicles and even exotic vehicles though economy vehicles have been known to take a big hit depending on their circumstances.

How do you figure out what are the best used cars?

Is a car a financial investment?

In almost all circumstances, a car is not a financial investment. They will lose value and cost you money at the same time, but a car is not really meant to be a financial investment in the first place. A car is a disposable utility that should last you for many years and many thousands of miles, but ultimately it will have to be replaced. This is something you have to consider when buying a car.

Read More: Can you get a car loan after bankruptcy?

Do cars ever appreciate?

Though some cars do actually appreciate in value, these are not the typical cars that a typical customer is looking for. In fact, the cars that do appreciate in value are usually astronomically expensive to begin with, and they only increase in value because of their rarity.

The one exception to this may perhaps be American muscle cars. If you don’t already own one, then it’s likely too late to find one that will appreciate. On top of all that, both the American muscle cars and the high-priced exotics really only retain their value if they are rarely driven. At that point, you are not really investing in your transportation but in a fancy piece of mechanical art that occasionally moves.

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