How To Use Depreciation To Buy a Used Car

Know the Stats on Depreciation To Help Negotiate a Better Price

The 2011 Ford Flex looks like an American icon but is actually made in Canada. That doesn't mean you can buy a used one in Canada and bring it into the U.S.A. Photo (c) Ford

Excellent research by Black Book, the company that puts values on used cars by extensively following the used car auctions and sales, shows depreciation information you can use to help you buy a used car.

Black Book’s editors and personnel attend about 60 auctions every week across the country to provide key insights. They have the best insight on depreciation.

It is not going to be easy to use depreciation.

It’s going to require a combination of patience on your part, a vehicle that might be selling slowly, and a less-than-savvy seller you might be willing to intimidate just a little bit. It also helps if you know how to read a CarFax report.

OK, the first thing you need to understand is depreciation. This is the value a car drops over time. It’s based on miles a used car is driven as well as the condition of the vehicle. However, there is a general assumption that a car drops in value just based on its age.

According to Black Book data, trucks finished the year with a total depreciation rate of 9.2 percent, ending the year with an average price of $20,543. (A lot of this research was originally published in AutoRemarketing.com.)

So, what does that tell you? Used trucks are depreciating at an average of less than 1 percent a month. Does your seller know that? Not necessarily.

But if you want to appear savvy, talk with the seller, especially a private seller, about the fact that used trucks are dropping almost 10 percent a year.

Let them imply the longer they wait, the more the car will drop in value. Offer them 5 percent below asking price just to see if they bite.

Why do I single out private sellers? They probably haven’t done the in-depth research you have on pricing. Sure, they may have taken the time to research the value of the truck they are selling but they haven’t taken the extra step you have and looked at the numbers behind the prices.

Cars dropped by a significantly more dramatic 18.2 percent to end 2015 with an average price of $14,196, according to the AutoRemarketing.com article. So, when you talk to the seller that figure turns into “almost 20 percent” annually used cars drop in value.

Heck, you can even appear authoritative and cite the source. Of course, as the expert on used cars, I’d prefer you mention this site but you can always say BlackBookAuto.com if you want to sound even more expert.

As I mentioned up top, you can also use a CarFax report to help you negotiate based on depreciation. It’s going to tell you how long a person has owned a used car, including how long the dealership has owned it.

A used car that has sat on a dealer’s lot for six months is not something a dealer likes. It becomes expensive to keep that car sitting around because it takes up space and the dealer pays something called floor plan financing. It’s a bit of complicated financials you don’t need to understand except for this: a depreciating used car combined with increasing payments on a loan makes the situation a win-win for a used car buyer.

Say you know by your research a used car was traded into a dealer nine months ago. (Sites like CarGurus.com -who I also write for - can tell you how long a car has been on the lot.) You can get away with offering a car dealer 10 percent below the listed price, especially if your credit is in order.

As a trade off you might consider getting your financing through the dealer just so they can make money on the deal but only do so if it matches independent interest rates you found on your own.

A private seller might be a harder nut to crack unless you find out the seller recently bought a new car. Then they might be feeling financial pressure to sell.

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Griffin, Keith. "How To Use Depreciation To Buy a Used Car." ThoughtCo, Jan. 31, 2016, thoughtco.com/how-to-use-depreciation-to-buy-a-used-car-3308565. Griffin, Keith. (2016, January 31). How To Use Depreciation To Buy a Used Car. Retrieved from https://www.thoughtco.com/how-to-use-depreciation-to-buy-a-used-car-3308565 Griffin, Keith. "How To Use Depreciation To Buy a Used Car." ThoughtCo. https://www.thoughtco.com/how-to-use-depreciation-to-buy-a-used-car-3308565 (accessed November 24, 2017).