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Understanding Car Depreciation: Your Ultimate Guide
Car depreciation is an inevitable part of owning a vehicle. It's a term that refers to reducing a car's value over time. This concept might seem straightforward, but it's a complex process influenced by various factors.
Understanding car depreciation is important when you're looking to buy or sell a car.
A loss in value for a car is also one of the key reasons why buyers look to protect their investment with GAP Insurance cover. It makes sense, therefore, that we provide a guide aimed at understanding why the depreciation of your car can be significant.
In this guide, we'll explore the factors that can impact depreciation and how you can guard against it. .png "What is car depreciation?")
What is Car Depreciation?
Car depreciation is the cash value you lose over time for the vehicle. It is often shown as a percentage against the original price you paid for the vehicle.
It's a natural process, and it's the most significant cost that car owners face, even more than fuel or maintenance.
Typically, over the first three years of ownership, a car loses between 40% and 60% of its value*.
That means buying a new vehicle for £20,000 could be worth as little as £8,000 after three years.
However, it's important to know that the depreciation isn't in a straight line. It's highest in the first few years and slows as the car ages, usually levelling out by the time it is about eight to ten years old.
Understanding car depreciation is important, especially if you're planning to sell your car in the future.
It helps you set realistic expectations about how much you can get from a sale and can also help you make decisions about car maintenance and upgrades.
Factors Influencing Car Depreciation
A variety of factors influence car depreciation. The first is the car's original price. High-end luxury cars often depreciate faster than economy cars. This is because luxury cars are often subject to trends and can become outdated quickly. On the other hand, economy cars are often in high demand, which can help maintain their value.
The perceived quality of a car can also significantly impact its depreciation. Cars from brands known for reliability and longevity, such as Toyota and Honda, tend to depreciate slower than those with less stellar reputations.
Running costs, including fuel economy and maintenance costs, also play a big role in car depreciation. Cars with high running costs, such as sports cars with high fuel consumption and maintenance costs, tend to depreciate faster than cars with lower running costs.
The Role of Mileage and Age in Depreciation
How many miles a car has been driven and its age is two significant factors that impact car depreciation. Generally, the more miles a car has, the lower its value. This is because a high mileage can mean that a vehicle has more wear and tear, leading to more maintenance and repair costs in the future.
Similarly, the age of a car can significantly impact its depreciation. As a car ages, it depreciates more, and this process never stops. However, the rate of depreciation slows down as the car ages. As a car ages, its value becomes more dependent on its condition than its age.
The Impact of Car's Condition and Colour on Depreciation
The condition of a car can significantly affect its depreciation. A well-maintained vehicle in good condition will likely depreciate slower than a car that is not. This includes mechanical maintenance, such as regular oil changes, tyre replacements and cosmetic maintenance, such as keeping the vehicle clean and free of dents and scratches.
The unpopular colour can also see cars lose value. Specific colours, like black, white, and silver, are more popular and therefore hold their value better. On the other hand, less popular colours, or colours that are unusual or unique to a specific model, may depreciate faster. This is because popular colours are more likely to appeal to more buyers when it comes time to sell or trade in the car.
How to Minimise the Effects of Depreciation
While car depreciation is inevitable, there are several strategies you can employ to minimise its effects. 
Good maintenance and condition
One of the most effective ways is to keep your car in good condition. Regular mechanical and cosmetic maintenance can help preserve your car's value.
This includes regular oil changes, tyre changes, full-service history and keeping the car clean and free of dents and scratches.
Avoid smoking or anything that can lead to heavy wear on the interior or exterior of the vehicle. These factors can also influence what a car is worth.
Keeping mileage low
Reducing mileage is another way to slow down depreciation. The fewer miles you drive, the less wear and tear your car experiences, which can help maintain its value. Consider using public transportation, carpooling, or biking to reduce your car usage.
Colour choice
Choosing popular colours can also help minimise depreciation. As mentioned earlier, popular colours like black, white, and silver are more likely to appeal to a wide range of buyers, which can help maintain your car's value.
Specification
Certain levels of manufacturers' specifications can have an impact on depreciation also. A leather interior or a full navigation system, for example, can help maintain the value of a car when compared to models without.
Don't buy new
Buying a used car or a nearly new car can help you avoid the steepest part of the depreciation curve. New cars depreciate the fastest in the first few years, so buying a car that's a few years old can save you money in depreciation.
Fuel efficiency
A car's depreciation rate can be impacted by how cheaply they are run. More fuel-efficient vehicles can be more desirable and therefore hold their value better. A used car with good miles per gallon return may be more desirable to the car-buying public than a 'gas guzzler'.
Car depreciation guide takeaways
Understanding car depreciation is crucial when buying or selling a car. By considering factors that impact depreciation, you can look to save money in the future.
Remember, the key to minimising depreciation is to buy smart and take good care of your car.
While you can't stop depreciation entirely, you can certainly slow it down.
Key Takeaways
- Car depreciation is the reduction in a car's value over time.
- A vehicle typically loses between 40% and 60% of its value in the first three years*.
- Factors influencing car depreciation include the car's original price, perceived quality, running costs, mileage, age, condition, and colour.
- Luxury cars often depreciate faster than economy cars.
- Vehicles with high running costs, such as those with poor fuel economy or high maintenance costs, tend to depreciate faster.
- The more miles a car has, the lower its value.
- The condition of a car can significantly affect its depreciation. A well-maintained car in good condition will likely depreciate slower than a car that is not.
- Popular car colours like black, white, and silver hold their value better.
- Strategies to minimise depreciation include keeping the car in good condition, reducing mileage, choosing popular colours, and buying a used or nearly new car.
Car Depreciation FAQs
How much does a car depreciate in a year?
On average, a new car depreciates about 15-35% in its first year*. After that, expect it to depreciate by about 15-18% annually.
How do you calculate the depreciation of a car?
Car depreciation can be calculated by subtracting the car's value at the end of a year from its value at the start of the year. If you want to work it out over a longer term, just subtract the value at the end of the term from the value at the start. This difference is then divided by the car's value at the beginning of the year or period to get the depreciation rate.
For example, if you buy a car for £30,000 and it is worth £12,000 three years later, then it has lost £18,000 over the 36-month term. 18,000 divided by 30,000, as a percentage, is 60%.
What is the depreciation of a car in the UK?
In the UK, a new car typically depreciates by about 40-60% in the first three years. After that, the rate of depreciation slows down.
What is the average depreciation rate of a car after five years?
On average, a car will have depreciated by between 60% and 70% of its original value after five years*.
What is the best age for a car to avoid depreciation?
The best age to buy a car to avoid the steepest depreciation is around 2-3 years old. The car has already gone through the most significant depreciation hit at this age but likely still has many good years left.
Is it worth buying a 10-year-old car?
It depends on the specific car and its condition. A 10-year-old vehicle will have depreciated significantly so that you can get a good deal. However, older cars may require more maintenance and repairs. Also, the manufacturers' warranty may have run out long ago.
Is mileage or age more critical?
Both mileage and age are essential factors in a car's value and its rate of depreciation. However, a well-maintained older car with low mileage may be worth more than a newer car with high mileage.
How much does a car depreciate per 1000 miles UK?
The depreciation per 1000 miles can vary greatly depending on the make and model of the car. On average, you can expect a vehicle to depreciate by about £0.67 per mile.
Does a car depreciate more after 100k miles?
A car's value tends to drop significantly once it hits 100,000 miles. This is a psychological threshold for many buyers, and vehicles over 100k miles may require more maintenance and repairs.
Do more expensive cars depreciate faster?
More expensive cars often depreciate faster than less expensive cars. This is because they have a higher starting value and can become outdated quickly.
What car brand loses the most value?
Luxury brands like BMW, Mercedes, and Audi tend to depreciate faster than other brands. However, the depreciation rate can also vary greatly depending on the specific model and its features.
Do electric cars hold their value?
With the world moving towards alternative fuelled vehicles, the popularity of electric cars is increasing. Indeed WhatCar quotes industry sources stating electric vehicle sales are up around 20% in 2023 in the UK so far, with more than 17,000 models leaving showrooms.
However, how do electric vehicles compare to traditional petrol and diesel cars regarding depreciation?
Some electric vehicles hold their value very well. For example, the Telsa Model 3 can expect to retain around 61.96% of the new price originally paid after 36 months, according to WhatCar.
Some EVs are not so robust against depreciation, with the Renault Zoe topping the WhatCar highest depreciation list at only being worth 42.19% of its original new price after three years.
Electric cars are a rapidly evolving technology, and this can contribute to their depreciation in several ways:
1. Battery Life: The batteries in electric cars degrade over time, reducing their range and performance. This is a significant concern for potential buyers of used electric cars, leading to higher depreciation.
2. Technological Advancements: The technology in electric cars is improving rapidly. New models often have better range, more power, and improved features than older models. This can make older electric cars seem outdated, reducing their resale value.
3. Government Incentives: Many governments offer incentives to buy new electric cars, which can lower their effective purchase price. However, these incentives usually don't apply to used vehicles, which can make used electric cars seem more expensive in comparison, leading to higher depreciation.
4. Uncertainty About Future Value: Electric cars are still relatively new to the market, and there's a lot of uncertainty about their future resale value. This uncertainty can lead to higher depreciation.
5. Charging Infrastructure: While the charging infrastructure for electric cars is improving, it's still not as widespread or convenient as gas stations. This can deter potential buyers of used electric vehicles, leading to higher depreciation.
As technology improves and becomes more mainstream, the depreciation rate of electric cars may start to decrease.
Published 22/5/23, written by Mark Griffiths
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