Cars start to lose their value the moment they’re driven off the forecourt. But why? And can depreciation be plotted, or even slowed down? Read on to find out.
Many drivers forget to factor in car depreciation when buying a car. The focus is often on fuel economy and cheaper maintenance or insurance costs as means of saving money.
But from the moment you pick up your new car’s keys and drive away, depreciation has already started. The potential loss of value of a car varies across manufacturers and models, and it’s a huge factor if you want to resell it after a few years.
The car depreciation rate can often be predicted, planned and – usually – slowed down, delivering bigger savings over time.
What exactly is car depreciation?
Car depreciation is the difference between the price you’ve paid for a car and the amount of money you get back when you sell it. However, not every car goes down in value. Classic cars and limited-run models can keep their value even after many years on the road.
New cars lose value at a much higher rate than used cars – that typically is about 15%-35% in the first year, and can go above 50% over the course of three. Depreciation tends to slow as the car gets older.
That’s why sometimes it makes more sense to buy a used car to avoid the initial depreciation hit. If buying new is what you want, then make use of your car warranty to reduce maintenance costs.
What influences depreciation?
As mentioned above, car depreciation rates vary between makes and models. However these aren’t the only factors. Demand for highly-desired cars can keep the resale value high.
Value also declines due to wear and tear through everyday use. How well a car has been maintained is a huge factor which affects a car’s depreciation rate. A well-looked after car will lose its value more slowly than an identical model that is neglected and poorly maintained.
More upmarket makes (eg Audi and BMW) known for their build quality and reliability will usually hold their value well through the years. Certain popular models, such as Ford Fiesta and Vauxhall Corsa, have flooded the roads in becoming widely available. This forces a higher depreciation rate as there are many to choose from.
Manufacturers regularly release “face-lifted” models to replace the older cars, which also affects older models’ depreciation.
More fuel-efficient cars tend to depreciate more slowly.
Cheaper-to-run models are highly sought-after in the secondhand market. What’s more, running costs in general can bump the price up. This can include car tax, mileage, and general cost of parts and maintenance.
What can I do to minimise depreciation?
There are certain factors, such as car tax and fuel economy, which are out of drivers’ control. However, there are few other factors that drivers can control to influence the resale value of their car:
Try to keep your mileage down.
Service the car properly and keep a comprehensive record.
Stay away from car modifications.
Sell before a replacement model is released.
Look after the general condition of the car.
Consider buying a nearly-new or used car.
Another thing that's worth considering is gap insurance, which is also known as car depreciation insurance.
It's a policy that covers the difference between the original amount you paid for your car, and the amount your car insurer pays out if your car is stolen or written-off.
So for instance, in an event of a claim, your insurer will pay out the current market value of the car. This will be quite a bit lower than what you originally paid when you bought it because of depreciation. This means when you're gettign a replacement car there#
If you decide to buy gap insurance, the policy will cover this.
Bur gap insurance will cover the different in price so you wouldn't have to worry about finding additional funds if you.