The reduction in value of products over time is called depreciation. The idea is to spread the cost of an item over the years that it will be used. For example, you buy a computer for your business and it’s expected to last five years. The IRS allows you to claim 1/5 of the purchase price each year as a cost of doing business. Of course the IRS has standard timeframes for different items, and they may not match that actual useful life of those items.

Cars are a perfect example. A brand new car in the showroom is worth close to the sticker price. As the car gets older and has more miles on it, its price goes down. But unlike the way the IRS treats value, the price actually declines unevenly over time.

The first big decline occurs as soon as the car is driven off the lot and becomes a used car. It would seem obvious that a two month old car with 2,000 miles is worth almost as much as a new car. After all, you’ve only used up a small percentage of the useful life of the car. But consumers don’t necessarily use logic in their buying decisions. There’s a fundamental difference in a car buyer’s mind between a used car and a brand new car that has never been owned by anyone. The market price of the car drops significantly, even if it’s in mint condition and is still under warranty.

The best time to buy a used car is right after a drop in market value that is greater than the loss in actual value to you. If you can find a used car with low miles that’s only a year or two old, the car’s value will be lower than it should be.

There are other circumstances that cause a used car to be sold for less than it’s worth. An older car with low mileage is that type of situation. Buyers think it’s old because of the model year, even though it has a lot of useful life left. Often older drivers buy a brand new car, but drive it a lot less than the average driver would. When they’re ready to sell it, it’s a five or ten year old car without many miles. If all you’re looking for is a reliable car with lots of use left, this could be a bargain.

There are some situations to be wary of, though, and they can cause a used car to be worth much less than its sale price. One is a car model that turns out to be less reliable than originally expected. Consumer Reports tracks the reliability of used cars by model and year. Usually when a new car is sold for the first time, buyers expect it to be well built and reliable, especially if the automaker has a good reputation. But sometimes it turns out to be a model that breaks down frequently and requires expensive repairs. This usually happens the first year a new or redesigned model is offered. Do your homework and don’t get stuck with a used car that is likely to need a lot of repairs.

Another hazard is a car that has flood damage or has been involved in an accident. It may be difficult to see if this is the case if the car has been repaired, but problems related to its history are likely to surface later. A carfax report is a simple and inexpensive solution to this problem.

If you watch out for signs of trouble and find a used car whose market value has declined more than its actual worth, you’ll get a great deal on a used car. And in this economy, it’s definitely worth the time to seek out that bargain.

Author Bio: Written by Hannah Valez
Used Car Dealer Houston
Used Nissan Ontario

Category: Automotive
Keywords: used cars, car depreciation, used autos