A quick guide to car depreciation

What is car depreciation?

Depreciation is the difference between the amount your car is worth when you buy it and its value over time.

Unfortunately, all cars lose value. Typically, new cars are the fastest to depreciate and they lose the most value in their first three years of life. In fact, car value can drop by 15-35% in the first year and up to 50% (or more) over three years.

While you can’t avoid depreciation, there are steps you can take to help limit its impact and help your car hold its value for longer.  

What factors affect depreciation?

While it’s true that some car makes and models depreciate faster than others, there are several other factors that can also affect the rate of depreciation:

Car Desirability and Reliability

Just like fashion trends, different cars become more desirable at different times. But some have earned enduring popularity, just like the little black dress or the Breton tee. This popularity is often linked to reliability; manufacturers like Ford have spent decades building a reputation for high production standards and solid construction. The more reliable or classic a car make or model is, the less likely it is to depreciate quickly.

Fuel economy and size

While you might be dreaming of a Range Rover or family-friendly estate, the bigger the car, the faster it’ll depreciate. And bigger cars also tend to use more fuel, which can be a concern for potential buyers. These cars can be more expensive to run, worse for the environment, and ultimately, less desirable over time.

Mileage

When it comes to depreciation, the more you drive, the quicker you lose value. A car that’s been put through its paces and racked up the miles will depreciate faster than one that’s barely hit 10,000 miles.

General condition

Every car will go through wear and tear over time but choosing to buy a car that’s in good condition will help it hold its value over time. Look out for any damage to the interior – scuffed seats or frayed seatbelts – as well as the exterior and bodywork.

Number of owners

Just like mileage, the number of owners is another case of less is more. The fewer previous owners a car has had, the better it’ll hold its value.

Service history

When buying a used car, look out for a full service history as it’s a good indication of how well the car’s been looked after. It should show you where and when the car’s been serviced and whether it’s in line with the manufacturer’s guidance or not.

How can I reduce depreciation?

Keep mileage low

Depending on how you need to use your car, driving long distances might be unavoidable. But, if you can keep your mileage low while you own the car, it could slow down the rate of depreciation.

Take care of your car

As any damage to the interior or exterior of your car could cause it to lose value, the more careful you can be – especially when navigating narrow roads or tight parking spaces – the better. Making sure you get your book in a car service regularly and carry out any necessary repairs quickly can also help it hold its value.

Choose a used or nearly new car

The rate of depreciation is quickest in a car’s first three years of life. That’s why opting for a nearly new or used car could be better value over time. Not only will you likely pay less than you would for a brand-new car, but it will also depreciate more slowly.

Avoid modifications

While it can be tempting to supe up your new wheels with extra-low spoilers, wide wheels, and flared wheel arches, these modifications can limit the pool of buyers willing to choose your car in the future and so impacts its value over time.

Stick to popular car colours

You might love your car’s bright yellow paint job or distinctive interior, but potential buyers might not feel the same. The most popular car colours are black, grey, and white – 60% of newly registered cars come in these colours. And while trends come and go (green was popular back in the early 2000S), neutral colours can stand the test of time.

Sell at the right time

Depending on the car you own, selling at the right time can help you get the best possible price. You might struggle to sell a convertible in the depths of January, but a family-friendly people carrier could fly if you advertise it ahead of the summer holiday season.