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Why do luxury cars depreciate so fast?

    Why do luxury cars depreciate so fast

    A luxury car comes with premium features, class, and most importantly the luxury feeling. But there is one more thing that is associated with Luxury cars, they depreciate very fast. Actually, luxury cars can depreciate up to 75% in a course of 5 years. But why do luxury cars depreciate so fast? 

    The simple reason is that the owners trade them when the car’s technology and model become obsolete and old, and the used car buyers do not want to pay a high premium for a dated model. So the value of those luxury cars goes down rapidly. 

    Another factor contributing to the quick depreciation of luxury automobiles is the prevalence of leasing. Buyers get a new car on lease and then after three years, they turn that car in exchange for a newer model of the car. This results in an abundance of three-year-old used luxury vehicles, putting downward pressure on prices.

    Let’s get to know more about the reasons luxury cars depreciate fast. 

    Do luxury cars depreciate faster?

    Yes, luxury cars depreciate faster and there are several reasons behind it too. These cars are usually owned by rich people and the one who can afford a new car, will surely not buy the old and outdated model. 

    Moreover, the one car they will buy will be exchanged for a newer version very fast, which means the supply of old cars will be high, which ultimately decreases the value of luxury cars. 

    Why do luxury cars depreciate so fast?

    There can be a variety of reasons behind this and all contribute to the depreciation in the value of these cars. Let’s get to know about these reasons:

    • Due to the fact that many people trade in their luxury automobiles as they become obsolete, used car buyers don’t want to pay a hefty premium for an out-of-date vehicle.
    • Previous government incentives and obsolete technology lead to the substantial depreciation of electric and plug-in hybrid automobiles.
    • Another reason is, that luxury cars have expensive features which are not valued much by used car buyers. 
    • Nobody who can afford a new luxury vehicle desires a used one, and nobody who desires a used luxury vehicle can afford a new one. So there is a gap here.
    • Those who can afford to purchase new luxury vehicles enjoy owning new luxury vehicles. Therefore, they tend to trade in their “near-new” automobiles at a faster-than-average rate, resulting in a rather robust supply of late-model luxury vehicles.
    • Another factor contributing to the quick depreciation of luxury automobiles is the prevalence of leasing. For financial reasons, many first-time buyers opt to lease a high-end vehicle with the intention of trading it in three years for the most recent model. As a result, there is sometimes a surplus of three-year-old luxury cars, which has a negative impact on their prices.

    So the surplus of old luxury cars results in the depreciation of these cars. 

    How fast do luxury cars depreciate?

    Luxury cars can depreciate at a very faster rate. According to a 2020 study by iSeeCars, the highest rate of luxury car depreciation is 72.6% in the period of five years. This shows that normal cars can give you better value than luxury cars after years of use. 

    Moreover, luxury cars usually depreciate in the first three years of owning. Because owners usually exchange them for newer versions. 

    What cars depreciate the most?

    Luxury cars depreciate the most and there are several reasons behind it. According to the study of iSeeCars in 2020, the highest depreciation was seen in the BMW 7 Series, which depreciated by 72.6% in a period of five years. 

    Here is the list of highest depreciating luxury cars according to a study of iSeeCars:

    RankingCar NameDepreciation in 5 YearsPrice Difference
    1BMW 7 Series72.6%$73,686
    2BMW 5 Series70.1%$47,038
    3Nissan LEAF70.1%$23,470
    4Audi A669.0%$43,469
    5Maserati Ghibli69.0%$61,289
    6Mercedes-Benz E-Class69.0%$48,457
    7Volvo S6067.8%$30,435
    8Mercedes-Benz S-Class67.1%$80,440
    9Lincoln MKZ67.1%$30,715
    10BMW X366.5%$35,682

    Eight of the ten cars on this list are luxury sedans. In five years, the BMW 7 Series superluxury sedan loses a whopping 72.6 percent of its value, costing $73,686.

    The BMW 7 Series is an expensive premium vehicle that depreciates quickly because it has features and technology that aren’t valued by used car purchasers.

    Bottom Line

    So now you know why do luxury cars depreciate so fast? There is not one but many reasons behind and it is hard to say that one particular reason affects this the most. If you are looking for an old luxury car, remember that they depreciate very much, so you might get a good deal. 

    We hope that you found this article helpful & informative. Please leave your valuable thoughts & suggestions in the comments below!

    Thank you for reading!

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