Understanding Car Values for Used Cars
There are several reasons you may be looking to buy a used car. Perhaps you are a car dealer. You may be flipping cars for a profit and running a small business or hobby for extra income. Or you may simply be looking to purchase a used car for your own personal use or as a gift for a loved one.
There are many factors to consider when buying a second hand car depending on your reasons for buying it. One thing will always be the same no matter what purpose you are buying a used car; you will need to know how to value the car and not pay too much. How do you understand how to value a car? What things can you do to make sure you understand the real value of the vehicle?
What is car depreciation?
Car depreciation put simply is the difference between what the vehicle was worth when it was purchased brand new and the value it is worth today. In fact this doesn’t just refer to new cars but the difference between purchase price and sale price on any car.
As soon as you drive away in your new car the depreciation has begun and it is a very important factor when purchasing a car. The difficulty also lies in the fact that depreciation can vary across different models and manufacturers. If you are aiming to keep a car for a few years before replacing with another then depreciation is something you need to look at.
With a new car the value will drop by perhaps 10% the moment you take it away with a further 15-30% dropping from the value over the first year. Depreciation slows afterwards and used cars will lose value slower than new cars. Around nine or ten years the depreciation will slow down and the value will not drop dramatically. There are ways to help estimate car depreciation online with websites and calculator tools for would-be buyers.
What factors into the value of your used car?
While an online calculator can estimate car depreciation there are other factors that you will want to take into consideration when making a used car purchase.
Checking the interior and exterior is very important. You will be looking for a well maintained vehicle. If there are any signs of wear and tear then factor them into the value of the car. If the wipers need replacing then that is a cost you will have to cover. Worn out tyres, windows that don’t roll down or other things that will need replacing should allow you some wiggle room when negotiating.
You should check for scratches, dings, dents and rust - especially in the wheel wells.These things can make that bargain purchase suddenly a far more expensive one.
Look under the bonnet or hood
A well maintained car should give you some confidence that the previous owner has looked after his or her vehicle with care but you shouldn't take too much for granted.
Check the oil. You want to see clear oil and at the correct level. Although changing the oil is not a big cost a leak is so you want to see that the oil is full. Check the belts. Timing belts are a costly replacement.
Take the car for a test drive
An essential part of choosing a car and understanding the value of it is driving it. You want to see how it runs and if the trasmission’s performance. If the seller will not let you take the vehicle out then just walk away from the deal. The price might seem good against your valuation but if the car has major problems then you may be stuck with a lemon.
Check the VIN online
If you are happy with the vehicle so far then run the VIN or Vehicle Identification Number with these services online; SaferCar and the NICB or National Insurance Crime Bureau. These are free ways to check against possible car theft and whether your car has been recalled as part of a safety recall. You can also pay Carfax to check whether your car has been involved in any accidents and other vehicle history including ownership and changes in title.
Some car parts are more expensive than others
You may have found a used prestige car at a great price but is this the true value of the vehicle? You need to take into account that parts for Ford vehicles are going to be far less expensive than parts for a Jaguar. This will affect the sell on value should you be looking to make a profit and should definitely factor into a used car price.
How does mileage affect the value of a car?
Annual average car mileage can change each year. If your car goes over this average then it may lose value quicker. This year, 2020 saw millions of people stay home due to the Covid-19 pandemic so the average mileage is likely to be extremely low. Normally you can group mileage into bands. These bands are around 20,000 miles and every time a vehicle goes through one of these bands the car depreciates a bit further.
When you use an online car depreciation calculator it will assume that you are travelling the annual average amount of miles each year. Like any calculator for investments or purchasing homes with NPV they can only give you an estimate based on the average. With these bands of 20,000 miles you can expect to lose 20% of the value of your car each time you reach the next band.
Summary
So you can see there are many factors when trying to understand the value of a used car. If it is a personal purchase then there is your own personal desire to factor in. You may be willing to pay more than necessary because you really want the car but if you use the above advice and online tools to help you estimate the real value then you can save money and make a worthy purchase.