I must be too bored studying….Living in a hostel in Singapore is insanely scary. I have mid-years exams coming soon and everyone’s studying like mad, except me. Read here for more info on the scary hostel I’m in now.

Anyway, as the title suggest, I have plotted a graph to illustrate when is the best time to buy or sell your second hand cars. Take a look at the graph here.

Let me explain the graph. On the left axis (and the black curved line) is the price of 2nd hand cars. The reason the price decreases exponentially is quite common sense. We all know the rate of depreciation for any new car value is at the greatest during the initial stage after buying right? And the rate of depreciation slowly decreases till it reaches a point where the car is not worth selling as a car anymore but would garner more value if it were to be sold as scrap metal….

As for the right axis (and the blue curved line), it refers to the maintenance cost of cars. Assuming this car has no factory defect, the cost of maintenance at the initial stage is minimal. But as the car gets older, and is subject to more wear and tear, the maintenance cost will increase exponentially.

The horizontal axis represents time. And it can be observed from the graph that there is a point of intersection between the two curves. I’ve marked them as Eq on both axes.

So when is the best time to buy 2nd hand cars? On my analysis, it is best if we buy 2nd hand cars somewhere around the big red dot on the black curve

Why do I say so? It’s because somewhere around that red dot, the cost of acquiring the 2nd hand car will not depreciate much more in the near future (or the depreciation value will be negligible)…Also, since the car is pretty new, the cost of maintenance will not increase very steeply yet….

In other words, my theory is that somewhere around that red dot, the depreciating value of the car and the maintenance cost of the car will be at the minimum to the new buyer.

If we buy a new car (or anywhere to the left of the red dot), the depreciating value of the car will be extremely great over time.

So does it mean that it is the best time to buy a 2nd hand car as the price is half its original value? Or 2/3rd it’s original value? That I’m not so sure because that will require further analysis of car prices which I do not have the time to do…

Then, what significance does the Eq on the graph bear other than the intersecting point of the two curves? The Eq here stands for the turning point when it is of the best interest to the seller to sell his/her car.

At this point, the value of the car has depreciated to such an extent that over time, the value will not decrease significantly anymore. However, this point marks the point when the car will start getting into more problems and maintenance cost will start to increase exponentially.

As a buyer, it is not a good idea to buy cars over here (unless you don’t mind the increasing maintenance cost) but simply because of the low value of the car.

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This is just some analysis based purely on monetary value. Of course I did not factor in many other variables when buying 2nd hand cars such as the mileage, whether it’s accident free, whether it has some factory defects etc….

This graph is just some opinion of mine regarding goods which depreciate in value over time such as cars. I have this idea in mind that to stretch your cash, that is to lose the least amount of money over time, it is better if we buy 2nd hand goods for goods which has depreciating value such as cars, cameras, handphones etc. And in the opposite sense, it is better to buy new goods for goods which have appreciating value over time such as land, property etc

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