Car depreciation explained

Money Advice Service

The value of a new car can fall at an alarming rate, although this varies across manufacturers and models. Make sure you know the facts about depreciation then use our simple calculator to find out how well your car will hold its value.

What is car depreciation?

Did you know?

Fuel is likely to be your biggest day-to-day car running expense, but the real cash-burner is depreciation.

According to research by CAP Automotive, depreciation will cost the typical motorist three times as much as they spend at the petrol pump.

Depreciation is the difference between a car’s value when you buy it and when you come to sell it.

This drop in value varies between makes and models but typically is between 15-35% in the first year and up to 50% or more over three years.

Motoring costs experts CAP Automotive say choosing a car which holds its value well delivers much bigger savings over time than focusing on fuel efficiency.

For example, a typical medium-sized family car bought three years ago will have lost £12,559 in value by now.

But the car’s fuel costs during the three years will only have been around £4,000, based on 12,000 miles a year.

Use our excellent Car costs calculator tool to get an estimate of your car’s depreciation and running costs per year

What affects a car’s depreciation rate?

Here are the reasons why some cars depreciate more quickly than others:

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  • Mileage –the average mileage is around 10,000 per year. The more miles, the less your car is worth.
  • Reliability – some cars have a reputation for unreliability. This can be based on customer satisfaction surveys.
  • Number of owners – the fewer the better. So check the number of previous owners on the car’s logbook or V5C registration.
  • General condition – damage to the bodywork, interior and exterior will reduce value. Make sure you inspect a used car carefully before buying.
  • Service history – the more complete this is the better. The service book should have stamps or receipts showing servicing in line with the manufacturer’s recommendations.
  • Length of warranty – three years is good, but some manufacturers now offer as long as seven years, which is a bonus when selling your car.
  • Desirability – some models are ‘face-lifted’ or replaced every few years, while some go on for 10 years or more. The more recent the model, the better it will hold its value.
  • Size – big luxury cars tend to depreciate more than smaller cars because they cost more to run and have higher bills for parts and maintenance.
  • Fuel economy – the more miles per gallon the better for many buyers.
  • The amount of Road Fund Licence (road tax) payable is also a consideration. Fuel-guzzling cars cost much more to tax each year, which makes them less desirable when selling second-hand.

Tips for minimising depreciation

  • Keep the mileage down.
  • Look after your car and repair any damage as soon as possible.
  • Buy a nearly-new or used car to avoid the steepest depreciation.
  • Avoid ‘boy racer’ modifications such as spoilers, wide wheels and flared wheel arches.
  • Sell at the right time of year – for example, convertibles in the summer and 4x4s in the winter.
  • Stick to popular colours – an outrageous shade might appeal to you, but will put off many buyers when you want to sell your car.
  • Consider leasing rather than owning – then there’s no worry about the car’s depreciation, which will be built into your monthly payments.
  • Do your research before buying a car – see how much values have gone down on older models and similar vehicles from the same manufacturer.
  • Choose the right options when you buy – for example, metallic paint and leather are best on executive cars, while built-in sat nav and air con are desirable on mainstream cars.
  • Maintain your car well – a full service history gives potential buyers peace of mind. So remember to keep all your car documents including service records and receipts safe and in one place.
  • Sell your car well before its replacement model arrives in the showrooms. To keep up to date with the latest news, read motoring magazines and websites such as What Car?, Autocar and Carbuyer.

Your next step

For more information on car depreciation, follow the links below:

This article is provided by the Money Advice Service.

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