originally published on http://vinadvisor.net

How Old Of A Used Car Should You Buy?

This week’s episode of Your Turn To Drive asks How Old Of A Used Car Should You Buy? Depreciation of a new car happens very fast in a very dramatic way.We’ve lined up a panel of experts — Jim Dykstra of vinadvisor, Philip Reed Of NerdWallet and Jaclyn Trop — to discuss what information you need to hit that sweet spot of when a used car is most valuable.

Used Car Valuation

Jim Dykstra
Welcome to the first in a series of video blogs designed to simplify car buying and ownership. First up, ?what age used car should I buy to get the most out every dollar?? What?s the sweet spot for car ownership? First we need a quick review on how cars depreciate. A new car depreciates approximately 12% per year over the first 5 years and then flattens to just a few per cent per year. The cost of any car is not the purchase price, but rather the purchase price ? trade or sale price + any significant repairs.
What age car can give you the lowest cost for 3 years? Spoiler alert, it?s not the first 3 years. The average new car depreciates 45% in the first 3 years, 25% in the first year alone. This is why the majority of consumers who want a new car should lease rather than buy.

Car Depreciation

Philip Reed
The allure of new cars is so strong for most people. But if you’re interested in saving money — in driving a near-new car for the least amount of money — you need to look at how depreciation works. This is the dirty little secret of new car buying. But there is a way to beat the system and avoid that big hit. As Jim pointed out, cars depreciate 45% in the first three years. But most of the depreciation is in the first year. Combine this with the fact that there is an upturn in leasing — it’s almost 1 in 4 new cars now — and this means a flood of three-year old cars are coming back into the market. Buy one of these cars and you’ll have a near new car with about 36,000 miles on it and will pay much less depreciation. Are there downsides to this rosy scenario? Perhaps.

Jaclyn Trop
If you’re considering buying a used car, I think only two considerations matter. Are you buying, let’s say, a three-year-old car because it’s at the end of a lease, still in great condition and it’s a lot less expensive than a new car? Or, are you buying someone’s headache? The financial deal may sound enticing, but are underlying issues with the vehicle not readily apparent from a cursory look or if you’re buying strictly on impulse? For either scenario, it’s well-worth the additional cost to have the vehicle inspected by your current mechanic or an independent mechanic via a friend’s recommendation. Acquire the vehicle’s history in detail and research several well-established automotive sites and compare used car price listings.

Jim Dykstra
Great points guys. The key points for a consumer considering what I would define as a premium used car ? 2 to 3 years old and less than 50,000 miles ? are prior ownership, reliability and an exit plan. There is a big difference between buying an off lease vs a rental car. On off lease car has had one owner (Lessee). A rental has had a lot ?relationships,? by no means does this disqualify the car but I wouldn?t pay the same for two identical cars if one was leased and the other rented. To James? point, check to make sure any open recalls have been fixed. Check the Fair market and trade value of your car annually to see the trend line for your investment. In general, if you guy a car with 40 to 50k miles, your best bet is usually to get out prior to 100k miles or keep it for as long as it?s good to you.

Philip Reed
I like the idea of having an exit plan even before you buy the car. 100k miles is a big psychological milestone that will hurt the value. Another consideration is the fact that, around 75,000 miles, most cars have a major service visit that can be pretty pricey. Plan around these events and you’ll minimize your ownership costs.

Jaclyn Trop
Another potential area to consider is the vehicle?s pedigree. Its previous private owner(s) or history as a rental or leased vehicle is certainly important. But every year some manufacturers? brands are at the end of their time and are discontinued, some after long tenures, some short. If you?re considering, for example, a Ford Flex, Chrysler 200 convertible or Jaguar XK coupe or convertible, would you further consider or perhaps change your mind since all three cars were no longer available new after their 2015 model years? I?d like to think those three cars might be available at good prices since they?ve been discontinued. Then again, I?ve never seen many Chrysler 200 convertibles. If you?re buying one now and you?re young enough, perhaps in 25
years you?ll own a classic. And maybe it will be worth more than you paid for it.

Jim Dykstra
Some great thoughts from Phil and Jaclyn to round out our look the Sweet Spot of ownership. A checklist as you start to shop for your next car or truck:
1. Age ? to most for least, buy a 2 ½ to 3 years old car and drive for 3 to 4 years.
2. Mileage ? the cost of maintenance rises with miles, look at selling before 100k miles
3. Ownership ? get a clear picture of who owned and drove your next car. 1 owner or rental matters, a lot!
4. Pedigree ? if you?re buying the last of a particular model, think about who will be interested in buying it in a few years.
Most importantly, invest some time to get prepared. An impulse decision to try a new restaurant is not very risky, walking into a dealership or agreeing to buy a car off Craigslist could be an expensive impulse!