Car Depreciation: Everything You Need to Know
Few of us buy a car with the intention of keeping it for more than a few years, yet not many of us will consider how well the car will retain its value when we do come to sell. This is despite it being common knowledge that cars lose considerable amounts in the first few years.
In fact, the amount of money lost in the first few years of a cars life is the single biggest factor affecting running costs.
To help you navigate this potential pitfall of car ownership, we’ve taken a thorough look at car depreciation and highlighted the steps you can take to reduce it.
What is car depreciation?
Car depreciation is the difference between the amount you spend when you buy a vehicle and the amount you receive when you sell it (its residual value).
Brand new cars typically lose value as soon as you drive off the forecourt, and most new cars take their biggest hit in depreciation in the first year of ownership.
Usually, this is around 15-35% in the first year and from 50% to 60% in the first three years.
After this time the rate of depreciation starts to slow and by the eighth year depreciation is usually at a standstill.
CAP Automotive state depreciation typically costs a motorist three times as much as they will spend at the petrol pump during their ownership of the car.
What affects a car’s rate of depreciation?
The rate of depreciation varies between manufacturers and models, and not all vehicles will lose value at the same rate. The rate of depreciation is also dependent on multiple factors:
Age – the newer a car is, the faster it depreciates, which is why some people prefer to buy a nearly new model as it has already suffered from some depreciation.
Once a car hits five-years-old, the rate of depreciation slows. However, bear in mind that as the car ages, the value will then be affected by the likelihood of higher repair costs.
Running costs – cars with low running costs are always likely to be popular and hold their residual value better. When it comes to running costs though, you need to consider fuel efficiency, road tax and servicing and repair costs, as all of these factors contribute to overall running costs.
To reduce depreciation, you should look out for cars with high mpg capabilities and low CO2 emissions. You should also do your research when it comes to servicing, MOT and repair costs.
Bear in mind that more mainstream manufacturers and popular car models tend to have lower parts and repair costs, while more luxurious brands tend to have higher repair costs.
Mileage – the more miles a car has done, the more value it loses. So a three-year-old car with 17,000 miles will be worth more than the same car with 60,000 miles.
Condition of the vehicle – a car that is in top-notch condition will hold its value better than a car that has suffered multiple knocks and dents. It is also a good idea to keep the car clean so that the car doesn’t get into a state that it is then impossible to get clean.
The number of owners – it still holds true that the fewer owners a vehicle has had, the easier it is to re-sell and the more chance you have of getting a better price.
Length of warranty – at one time a three-year warranty was the best you would get, but nowadays there are a few manufacturers who offer more substantial warranties up to seven years long.
A car with more years warranty left is likely to be able to fetch a higher price than a similar vehicle with no remaining warranty.
Reliability – with more data readily available on the reliability of a particular make or model, people can do their own research when it comes to choosing a used vehicle. Therefore it is a good idea to investigate and choose a model which has a good record for reliability.
Desirability – more desirable models tend to hold onto value better. However, be aware that quirky, fashionable styling might be desirable one year but quickly go out of favour. So what you really need to look for is a car with a timeless style that will always be appealing to prospective buyers.
How can I minimise depreciation?
The good news is that there are a number of steps you can take to help minimise depreciation:
Colour – If you are keen to minimise the effects of depreciation, then you should choose the colour of your car with care. Colours like silver, black and blue tend to be continually popular whereas other colours tend to fall in and out of fashion.
Fuel Efficiency – Opting for a car that has impressive mpg capabilities will do you a favour when it comes to selling. People will always value fuel efficiency, so this is a good way to ensure you get great value for money further down the line.
Haggle – Getting the best price for your car when you buy new by haggling, should lessen the rate of depreciation when you’re ready to change vehicles.
Minimise Mileage – Minimising your mileage is a great way to maintain your car’s value, but let’s face it, it’s not always practical.
Keep the car in like-new condition – you should keep the car in tip-top condition to help reduce car depreciation. This not only means keeping it looking great but also ensuring you keep up to date with servicing, MOTs and any necessary repairs.
Full manufacturer service history – Which leads us to the fact that having your car serviced by a manufacturer approved garage can also help to improve the worth of a car when it comes to selling.
People want to know you haven’t taken any shortcuts and the car has received the best possible care from a manufacturer-approved garage.
Choose extras with care - If you are buying a brand new car it can be easy to get carried away and opt for the extras you desire. However, the savvy among us will opt for the options that will still add value to the car in a few years.
If you’re going for an Executive model, then leather seats are a good choice, whereas with mainstream models you’re better making sure it has a satnav or air conditioning before considering improving the seat fabric.
Do your research before buying – We now have more information readily available on the majority of cars, which means you can do your research prior to buying. As part of this, you should take a look at how well different makes and models hold their value.
It’s also a good idea to keep abreast of automotive developments so that you can sell your current car before the next model is released.
Lease – To totally avoid depreciation, you could choose to lease a car rather than buy. With fantastic leasing options available, here at Stoneacre, it is easy to see why leasing is becoming an increasingly popular option.
View our lease deals