Buying and selling used cars is a major financial decision in many families. Figuring out when to buy or sell a used car, however, can be a complicated decision. For someone who is selling a vehicle, figuring out when to sell is a decision that is based around several factors, but the main factor is determining the value of the vehicle.
Obviously, a vehicle will depreciate in value as it becomes older. Few vehicles will depreciate linearly, however. That is, most vehicles do not lose their value steadily over time, but rather, will lose value in pieces. For example, a new car will typically depreciate by about 20% within the first week after its purchase. For this reason, used cars that are less than a year old will sell for about 80% of its purchase price. For this reason, someone selling used cars will try to avoid selling a used vehicle that is less than a year old.
On the other hand, used car prices also have a point where they seem to stop depreciating, or “bottom out”. For example, used car prices for 95% of vehicles over ten years old are usually between $1500 and $2500. This is regardless of the original purchase price of these vehicles. For this reason, people looking to retain some value in their used cars would not want to sell them at this point in the vehicle’s life cycle.
Figuring out when to sell a car depends a lot on the financial goals of the individual selling. To determine the best time to sell, it is first necessary to determine if the goal is to get the maximum amount of usage from the car, or sell it for the maximum amount of value.
To get the maximum amount of value from a vehicle, a person will need to drive it until it’s expected maintenance costs exceed its total value. Since used car prices are typically stable after ten years or 80,000 miles, a “use value” seller would want to keep the vehicle until at least one of these milestones has been reached.
The second method to determine the optimal resell time is to look at the monetary value of the car compared to its original purchase price, also known as the investment value. This method is ideal for a person who wants to sell a car and get the maximum return possible on his or her investment.
In order to determine this point, look at the values of a similar make and model of vehicle over the past ten years. For example, a 2011 Honda Civic owner would look at the values of a 2001 Honda Civic over the past ten years, as well as the values of a few other manufacturer years of the car. From this data, it is possible to determine an estimated value of the 2011 vehicle for each of the next ten years.
Once the vehicle owner has the estimated value of the car, he or she next has to decide on the ideal time to sell. In many cases, a person will want to wait until the car loan has been paid off to the point that the car is worth more than what is owed on it.