Absolutely have your eye on a new car or truck that has been just been introduced, but you know you can’t afford it new? Well, there is a simple formula for predicting what a used vehicle is going to be worth three years down the road.
The first fact to consider is almost all used cars, trucks, SUVs and crossovers lose a minimum of 24% of their value after 12 months. That’s based on the Manufacturer Suggested Retail Price.
To keep things simple, a used car costing $20,000 would be worth $15,200 after one year. So say the folks from Black Book (www.blackbookusa.com). It sounds like a dating sight, but it’s actually the number one resource for predicting a car’s residual value when it goes on sale. That’s extremely important for setting leasing rates.
Then, from the basic 24% drop in value, you can start deducting 6% a year. A decent used car, introduced with the price of $20,000, would have an estimated value breaking down this way:
- After 12 months: $15,200
- After 24 months: $14,288
- After 36 months: $13,430
- After 48 months: $12,624.
Of course, this formula will not work 100% of the time because some cars and trucks have residual values that drop like stones after 12 months. Case in point would be the Chevy HHR.
- 2009 Chevrolet HHR LT - $20,729
- 2008 Chevrolet HHR LT - $11,225 dealer price, according to Edmunds.com.
That’s a drop of 46% in one year. Wait two years and you’re looking at a $10,551 vehicle. Proving pretty much if you want a Chevy HHR, buy a used one. You are going to save a ton of money.
Use this basic formula to help you get started on what the value of a used car should be. It will save you from spending too much on your next used car or it will help you put aside the right amount if you’re a good saver!