Feb 27 2008

Car depreciation: Eh, don’t worry so much

"As soon as you drive it off the lot, your new car depreciates by about a million dollars and twelve cents."

Is that how the saying goes? Something like that, anyway.

I got my car new in May 2006. In three months, "Shirley" will be two years old. She has 17,500 miles and is in fantastic condition. The car is a four-door sedan from an American-owned company.

I typically get 30 mpg in the city, but 25 mpg if my travels take me up and down some of the steeper hills of Pittsburgh. On the highway, though, watch out: I get 40 mpg.

My car is still worth more than I owe on it.

I checked with Kelly Blue Book and Edmunds, and both are listing it at about $1,700 more than I owe on it. The car has depreciated by about $1,000 from what it was purchased for in 2006.

That’s A-OK with me!

If I take that $1,000 and add all the fuel, oil changes, car washes, and insurance…I feel like that’s a decent rate for driving 17,500 miles.

For one thing, having a car was required when I worked as a newspaper reporter. And, I’ve used it to take quite a few trips from Pittsburgh to Indiana and back. Costly, but nowhere near as expensive as flying would have been.

So, for what it’s been worth to me in these last two years, it depreciating a little bit isn’t a big deal.

I hope to get at least 200,000 miles out of my car. My parent’s car has 240,000 miles (?!) and is still chugging along.

I have no intention of selling it ever, but it’s nice to know that it’s still worth more than I owe.

Yes, that means the car is financed. I understand that some people think that’s a bad idea, and would prefer to pay cash for a used car. I hope that for our next car purchase, we’ll pay a good chunk of it in cash, but it’s hard to say what will happen then. Would I like to walk into a car dealership and say "I’m paying cash, and you’re going to give me a great deal" ? Yes, of course.

In our case, we took out a 4-year loan on the car, and if we don’t make extra payments, we’ll end up paying about $1,000 extra in interest, or the way I see it, an extra $250 per year.



6 Responses to “Car depreciation: Eh, don’t worry so much”

  1. Way to go on putting such low miles on the car! And, way to go on not being upside-down on your loan.

    If you’re going to keep the car forever, you’re right, depreciation doesn’t matter. With my husband’s car, we don’t even consider resale value when looking to the next car, because we don’t expect to get much out of it (it’s 16 years old & still going fine). With mine, it’s a newer car now and we’ll (hopefully) keep it forever, to the point that resale won’t matter. Our next car, we’re planning on paying cash for a used car. We read Dave Ramsey’s car-buying strategy, and we’re not sure we can do that at this point, but its a nice thought.

  2. I got a 5 year loan on my car because that’s the way the finance company did the paperwork. When I got home, I made my own ammortization schedule for a 4 year loan and that’s what I pay every month on my car.

    5 years is too long. I can’t even imagine paying on a 72 or 84 month loan! That’s insane.

  3. I just checked “Kimono” and fortunately we’re also right-side-up on our loan with her. *whew* Of course, we plan to drive her into the ground if possible… :)

  4. I miss Shirley! Chicken, penny.

  5. K’s parents bought their Xterra in cash. His mom shopped around and haggled with the salesman until she got the price and the exact car she wanted. She tried to pay with her credit card to get all the rewards that would come with such a big purchase, but they wouldn’t let her. They’re really frugal with everything — it was the first new car they’d ever owned, according to K.

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

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