An often used phrase, ‘losing value as soon as it’s driven off the forecourt’, reflects how a car, once used, will never fetch a new car price no matter how short a time the first owner keeps the car for.
Depreciation is the term given the amount a car loses in value as time (and the amount of miles driven) moves on.
The AA reports that the average new car will have a residual value of around 40 per cent of its new price after three years, assuming it averages around 10,000 miles per year.
However, this percentage can differ greatly between cars and different variations of those cars.
Unfortunately, depreciation is inevitable, even with used cars, but you can help yourself by choosing a car which is likely to depreciate less. Below are some tips on buying a car which will hold as much of its value as possible.
What is residual value?
The residual value of a car is the amount it will be worth after a certain period of time after taking depreciation into account.
The higher the residual value of a car, the less you are likely to lose when it is time to sell it on.
What causes depreciation?
The fact a car is older and has been owned by somebody else will be the major cause of depreciation. However, the mileage of the car is also a factor, particularly on older cars.
The state the car is in, including damage to the bodywork, interior and engine will reduce the price drastically and the repair and maintenance history will also contribute.
It also depends on the car itself. A popular car with a lower supply will mean people are more likely to offer higher amounts for the car when it comes to selling it on.
How much will my new car depreciate?
A brand new car will depreciate drastically in its first year. Cars on average will lose 40 per cent of their value in year one and 60 per cent after three years, assuming 10,000 miles a year are driven.
However, it depends on the make and model of the car. Luxury cars are well known for losing value quickly and could lose over 50 per cent of their value in just one year. More popular sought cars, like a Ford Fiesta or Fiat 500, may only depreciate by between 10-20 per cent in their first year. However, this will all depend on industry trends at the time.
It’s always worth looking at used car listings for any car you are intending to buy before purchasing it. This gives you an idea of how much it will depreciate in future. This is a particularly useful tactic if you regularly change your car and don’t want to lose too much in the transactions.
How much will my used car depreciate?
Buying a car that is a year old means you will still have an up-to-date model and will benefit from all the latest technology and equipment.
It could also mean you have saved on the first year of depreciation, which is usually the most drastic, and is a clever option for people looking to save money on a new or nearly new car.
Older cars will offer even lower purchasing prices and will not depreciate at anywhere near the same rate as a new car. However, it may result in extra costs for maintenance and repairs because the car is older.
How can I avoid depreciation?
If you own the car, there is no way to avoid depreciation. However, this potential headache can be avoided if the car is leased. Not only does this kind of deal pass over major repair work to the leasing company, it also passes on all the depreciation since the car isn’t owned by the driver.
This option isn’t for everyone, but leasing is popular with business users keen to avoid the effects of depreciation.
What car will offer the lowest rate of depreciation?
This will change as new models come out and the supply of cars changes. As a general rule, smaller, less expensive cars will depreciate by the least amount of money because of their low price to start with.
This doesn’t mean smaller cars offer the best residual values, because a car worth £10,000 depreciating by £4,000 is a 40 per cent increase.
Meanwhile, a larger, more premium car priced at £50,000 depreciating by £10,000 is more in monetary terms, but still only a 20 per cent decrease in value.