Can You Negotiate the Residual Value of a Car Lease

How Can You Calculate the Value of Your Car?

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Even if you consider most shopping to be a chore, shopping for a new car just might fill you with a sense of excitement instead of dread. These days, new cars — and even recent models of used cars — often come with some impressive bells and whistles, such as automatic braking, lane departure alerts and blind-spot alerts. It can be quite a thrill to upgrade from an older car with limited features to a shiny new model that practically drives itself!

However, an unexpectedly poor trade-in value on your existing vehicle can ruin the excitement very quickly. First, unscrupulous dealers could offer you less for your vehicle than it's actually worth to increase their own profit. Second, your car could legitimately be worth much less than you expected for any number of reasons. To avoid shock and disappointment, you need to make sure you know your car's value before you try to trade it or sell it privately. If you're not sure how to find that information, here's a quick look at some tips for calculating the value of your car.

General Depreciation Metrics

When it comes to buying and selling cars, the information out there consists of both fact and fiction. If you've heard that a brand new vehicle loses thousands of dollars in value as soon as you drive it off the lot, it's a partial truth. Once a car is registered to a new owner, it's no longer considered "new" and must be sold as a used car, no matter how few miles it was driven. This generally causes the value to drop around 10% shortly after the purchase. However, most states have buyer's remorse periods that allow new car sales to be canceled within a short period — usually a few days — which means the downgrade to "used" doesn't occur the minute you leave the lot.

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According to U.S. News & World Report, depreciation for most vehicles averages about 15% to 25% per year for the first five years. Most vehicles in good condition are worth around one-third of their original purchase price at the end of the five years, but many variables can affect the value calculation for a specific car.

Gather All the Specs and Details for Your Car

The value of your car depends on much more than the make, model and age. The age-old claim that certain car models retain their values better than others has some truth to it. For example, in 2019, Kelley Blue Book — a trusted auto industry resource for determining value — reported that Toyota and Porsche were two brands that traditionally retained a high percentage of their original value for a longer period. This is partially due to higher demand for some vehicles as well as the reliability and longevity of engine parts and components.

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Beyond market demand and the age and starting price of your vehicle, factors like mileage, condition and specific options can have a significant impact on the resale value. Make sure you know all the details about your car's exact model, including engine specs, transmission type, drivetrain, exterior trim (bumpers, headlights, wheels, etc.) and interior trim (leather, navigation, backup camera, warning and alert systems, etc.), as these features play a role in the vehicle's value.

Prepare to Take a Hit on Premium Features

Interestingly, the role of features isn't usually to boost the value, as you might imagine. Instead, the premium features that you paid a pretty penny for when you purchased your car might do very little to improve your car's resale value. In most cases, fully-loaded vehicles with all the manufacturer's top features lose their value much more quickly than base model cars. After all, the used car market essentially dictates the value, and used car buyers are often much more focused on value and great deals than premium features. Amenities that don't hold their purchase value very well include sunroofs, premium wheels, premium seats, and turbo or supercharged engines.

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Evaluate the Condition and Mileage of Your Vehicle

The overall condition of a vehicle carries a lot of weight when it comes to determining the value. A vehicle's condition includes details about mechanical defects as well as its exterior and interior appearance. If you don't consult with a professional mechanic, determining the condition of your vehicle can be very subjective. Without knowledge of exactly what's going on under the hood or inside the vehicle's computer, many people end up believing their vehicles are in better condition than they actually are, which leads to overestimating values.

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It's much easier to account for cosmetic issues caused by dents, scratches, tears and stains. Be sure to go over your vehicle in detail and accurately note every flaw as well as anything that looks as good as new. Additionally, the odometer reading provides an instant, accurate reading for the number of miles driven, which is another important detail that influences a car's value. In general, vehicles with lower mileage have less wear and tear on their components and command higher prices than the same models with higher mileage — assuming no other factors are dramatically different.

Use Online Tools to Estimate Your Vehicle's Value

Once you've gathered the information you need about your vehicle, you can use several online vehicle valuation tools to obtain estimates of your car's value. Many of these tools will also ask you about the location of the vehicle, as market pricing trends can vary somewhat in different parts of the country. Besides the previously mentioned Kelley Blue Book, Edmunds, NADA (National Automobile Dealers Association) and Consumer Reports have strong reputations for providing reliable pricing estimates free of charge.

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Additionally, some large online car buying sites, like Carvana, Auto Trader and CarGurus, offer tools to help consumers determine vehicle values. However, these sites should be used with more caution, as their goal is to financially benefit by selling you a car (or buying yours) after providing the free information.

Consider Selling Your Car to a Third Party

One key detail that often has a huge impact on the value of your vehicle is the method you choose for selling it. Trading your used vehicle to a dealership to reduce the price of your new vehicle is easy and convenient, but it isn't usually the smartest financial choice. If you have time and another vehicle to drive before making your purchase, you can often sell your used vehicle to a private party for a higher price.

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The logic is simple: A dealership can't afford to pay you the full value of the vehicle and still make a profit when they sell it as a used car. A private party, on the other hand, may be willing to pay you exactly what the vehicle is worth — after doing their due diligence, of course.

However, if you're like many people, you prefer the minimal effort that goes into trading your used vehicle when you're ready to purchase a new one. There's nothing wrong with that as long as you don't walk onto the lot unprepared. If you want the best deal, be sure to show up armed with solid research about your car's value.

Conley Dowent