The car you bought new 3 years ago for $30,000 is worth just over $15,000 today, and you’re thinking maybe it’s time to trade it in or sell it. It’s easy to let panic sink in in this situation; you’ve seen serious depreciation in value on your vehicle, and it seems like now is the time to trade the car in before its value vanishes completely.
Not so fast! While it seems logical that getting rid of that used vehicle is the smartest move, you shouldn’t use the last couple of years of depreciation as an indication of what will happen next.
Every car is different, so it’s impossible to make blanket statements here, but we can do some basic math (with the help of Kelley Blue Book).
If you had a $30,000 vehicle that lost $15,000 in value over 3 years, you paid $416 per month in depreciation to own the vehicle. But that same vehicle in 3 more years will likely only drop to $13,000 in value. That means for the next 3 years, you’re paying $55 in depreciation every month. Ultimately, if you keep the car for 3 years, you “lose” $416 per month in value depreciation, but if you keep the car for 6 years, you only “lose” $236 per month. So it makes more financial sense to keep the car longer. (We say “lose” because depreciation isn’t really dead-weight loss; you get to have a new, reliable car relatively free of hassles and maintenance issues, and that’s worth something.)
Again, we can’t give exact numbers with the wide variety of auto types and values out there, but the truth is, a car loses value MUCH faster in the first two years of ownership. Once you’ve weathered that stretch, the value will drop much more slowly.
So when should you sell your car? When the cost of maintenance and repairs gets high enough that it makes sense to get into another car payment instead.