Car Depreciation: What is it? And how to make it work for you

By: James Ruppert
Car depreciation

Depreciation is brilliant, it makes used cars very affordable. Unfortunately, it’s your biggest day to day motoring expense. The trick is to minimise its effects and make depreciation work in your car owing and buying favour.

Just in case you wondered, depreciation is the difference between a car’s value when you buy it and when you sell, simple as that. The smart thing to do is to buy a car that is going to lose the least amount of money. Indeed, the even smarter thing to do is buy a car which has already depreciated and then does so slowly as you use it for the next few years.

 

What affects car depreciation?

Let’s briefly look at some of the factors which affect a car’s depreciation performance, the sort of thing that a dealer might consider when taking a car in part exchange.

  1. The higher the mileage, the less it is worth as, on average, a car is reckoned to cover 10,000 miles a year.
  2. Expiry of the manufacturer’s warranty, usually three years, sometimes more. Number of owners, fewer the better.
  3. Just as important is a complete service history.
  4. Reputation is everything. Then again, some car’s top reliability surveys, others don’t, and they may have a desirable badge (Mercedes), or just be a run of mill company car (Ford).
  5. High road tax, insurance and general running costs all play a part.
  6. Oh, and almost forgot, the condition is relevant, as unwashed and dented is not a good look.

A vehicle’s value drop can be a modest 15% but can even be as much as 40% in the first year, so it pays to choose wisely and ideally buy a nearly new car, up to a year old. This means that the initial depreciation disappears without costing you a penny and there is still the protection of a manufacturer’s warranty. Another protection that is certainly worth having is GAP Insurance – this is designed to cover the difference between the amount a car insurer would pay out if your car was stolen, or written off, and the price you paid, otherwise you would lose out.

Which cars depreciate the least?

So, what motors should we be looking at? Well, if you really wanted to keep hold of most of your money then some of the cars with the smallest depreciation drops are some of the most expensive and desirable cars like the latest Land Rover Defender, Tesla Model 3 and Porsche 911. But what about real cars for real people?

Small cars don’t lose very much, are always desirable, cheap to run and models like the Toyota Aygo are easy to own and over a three-year period using an online calculator depreciate at around 35%. If it cost £8,000 nearly new you should get £5000 a few years later.

When it comes to sensible mid-sized hatchbacks there is always the Volkswagen Golf. It is almost impossible to go wrong with what is one of the best all round vehicles on the market. Perfect for the family and with a high specification a one-year-old example costing £15,000 it will depreciate by just 20% over the next three years.

Because the UK car market is SUV shaped, choosing a mainstream marque need not cost a fortune such as a Ford Edge. So, a one-year-old example at £18,000 translates into an £11,500 part exchange amount which means 35% depreciation.

If you want to do your own calculations than visit https://www.themoneycalculator.com/ and https://www.fleetnews.co.uk/car-running-costs-calculator

Clearly, depreciation can be brilliant, provided you make it work for you.

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