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Car Depreciation Explained


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Fuel, road tax, maintenance, running costs… everyone understands these motoring expenses. Depreciation however, remains a somewhat hidden expense. Even though, after fuel purchasing, it’s probably a motorist’s biggest cost.

Depreciation is simply the difference between how much you spend buying a vehicle and the amount you get back when selling. On average, a new car will have a residual value of around 40% of its new price after three years (assuming around 10,000 miles/year) or, putting it another way, it will have lost around 60% of its value.

More fuel efficient vehicles tend to depreciate more slowly because cars that will be cheaper to run are always popular. Depreciation is also affected by the model replacement cycles of manufacturers. This means a brand new model may depreciate more slowly than the model that’s on the way out. The old ‘last year’s model’ syndrome!

It’s worth knowing that depreciation does slow down as a vehicle gets older. So it can be that purchasing a nearly new car (perhaps one to two years old) offers better value than buying a brand new one.

So, whether you’re looking to purchase or thinking of selling your existing vehicle, there are lots of depreciation factors to take into account. It’s clearly not as simple as just looking at the number of years that a car has been on the road.

10 factors that affect a car's depreciation rate

Some cars depreciate more quickly than others. There are lots of reasons behind this, factors that in different ways affect the value of a vehicle over time.

Mileage

The average annual mileage for a car is approximately 10,000 miles. Higher mileage generally means the vehicle is going to be worth less.

Reliability

Some cars have a more reliable reputation than others, a fact that’s backed up by customer satisfaction surveys.

Number of owners

When it comes to holding on to a vehicle’s residual value, the rule is: the fewer owners, the better.

Service history

Having a complete service history is helpful. If the service book has been correctly stamped, or you have the receipts to show the vehicle has been serviced in line with the manufacturer’s recommendations, it will be more desirable and more valuable.

Desirability

Some vehicle manufacturers ‘face-lift’ or replace models every few years. Others go on for 10 years or more. Once again, the more recent the model, the better it will hold its value.

Fuel economy

The more miles per gallon the better. This is one reason why diesel cars hold their value slightly better than petrol cars. Although, with improving petrol engine efficiency, this is changing.

Length of warranty

Some of today’s models come with a seven year warranty. This extra time can be a real bonus when it comes selling.

General condition

Ultimately, damage carries a cost. If your vehicle has bodywork issues or a shoddy interior you can expect an impact on its value.

Size

Large luxury cars tend to depreciate more than smaller cars. This is because they cost more to run and their parts / maintenance are usually more expensive.

Road tax

The amount of Road Fund Licence payable needs to be considered. Fuel guzzling cars cost more to tax each year, making them less desirable to buyers.

The worst car models for depreciation

Every new car loses money. Some just lose it faster than others. There are exceptions of course. Rare performance cars, limited edition models and the like can appreciate in value over the years. In most cases though, time brings a vehicle’s value down.

With data from the CAP’s used car valuation teams this Top Ten list (new, mainstream models) contains the cars that haven’t held their value as well as hoped. It’s been ranked on the predicted percentage of their new price they’re likely to retain after three years/36,000-miles.

Number 10.
NISSAN – Infiniti Q50
Average cost: £34,102
% retained: 36.3%
DEPRECIATION: £21,718
car depreciation factors
car depreciation factors
Number 9.
FORD – Ka
Average cost: £9,790
% value retained: 36.2%
DEPRECIATION: £6,240
car depreciation factors
Number 8.
SEAT – Mii
Average cost: £9,123
value retained: 36.1%
DEPRECIATION: £5,823
Number 7.
ALFA ROMEO – Mito
Average cost: £14,315
% value retained: 35.3%
DEPRECIATION: £9,240
Number 6.
VAUXHALL Cascada
Average cost: £28,326
% value retained: 35%
DEPRECIATION: £18,439
Number 5.
MASERATI – Quattroporte
Average cost: £69,325
% value retained: 34.3%
DEPRECIATION: £45,575
Number 4.
VAUXHALL – Meriva
Average cost: £19,007
% value retained: 34.1
DEPRECIATION: £12,615
Number 3.
FIAT – 500L
Average cost: £22,135
% value retained: 33.3%
DEPRECIATION: £14,760
Number 2.
FIAT – Qubo
Average cost: £15,794
% value retained: 29.9%
DEPRECIATION: £11,070
Number 1.
MG – MG6
Average cost: £18,610
% value retained: 25.4%
DEPRECIATION: £13,885

Ways you can minimise depreciation?

There are measures you can take to avoid the shock of huge depreciation. A few simple pointers would be:
1
Keep an eye on your vehicle’s mileage
2
Keep your vehicle serviced regularly
3
Repair any damage as soon possible
4
Keep your records, receipts and documents
up-to-date

Another one to include is to avoid flashy modifications such as spoilers, flared wheel arches and wide wheels. When it comes to selling, these can cost you more than they gain you.

There’s also the option of taking out GAP insurance. This is an insurance policy designed to cover you from loss in the event of an accident where your car is written off. GAP insurance is not typically designed to cover older or relatively inexpensive vehicles.

If you’re thinking about buying a car and have its residual value in mind:

  1. Look at a nearly-new or used car – this will help you avoid the steepest depreciation drop
  2. Think popular colours – an outrageous colour might appeal to you but it won’t be everyone’s cup of tea and will probably affect the resale value
  3. Consider leasing – Okay, so you don’t actually own the car, but at least there’s no worry about depreciation as it’s built into the monthly payments
  4. Choose the right options when buying – for example, metallic paint and leather are best on executive cars; built-in sat navs and air-conditioning are desirable on mainstream cars.

And finally, if you’re thinking about selling and want to avoid depreciation, put your car up for sale well before a replacement model arrives in the showrooms.

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