While 99% of cars depreciate, there are some factors that can dramatically impact the amount that a vehicle loses in value. These include:
The age of a car is the biggest factor in depreciation, as new cars depreciate the fastest. Most brand-new vehicles lose around 10% of their value as soon as they’re driven from the dealership and a further 10-20% before the end of the first year. After that, the depreciation levels out to between 15% and 25% per year, for an average loss of 60% by the third year. Because vehicles depreciate the most in the first year, buying a used car can save you roughly 20-30%, as value loss averages 17.5% after the first year.
Instead of buying a new or used car, you could choose to lease. With contract hire, there’s no need to take vehicle age into consideration as the cost of depreciation is included in the monthly payments, based on the car’s expected residual value.
Supply and Demand
The higher the demand for a car, the less it will depreciate over time. Conversely, if there are more sellers than buyers, resale value may go down. Even the colour of a car will affect the resale value – although a uniquely coloured car may appeal to you, it will narrow down the number of potential buyers interested in the car when you come to sell. Black, white or silver cars are the best choices to reduce depreciation.
Another factor to take into consideration is the time of year you choose to sell. For example, you’ll get less for a convertible if you decide to sell during the winter, and less for a 4×4 in summer. Furthermore, if the manufacturer just updated or discontinued your model, the resale value will go down unless it’s a particularly rare or desirable car.
Although fuel efficiency alone doesn’t determine depreciation, MPG is a key influencer in resale value. Larger vehicles and larger engines require more fuel more frequently, meaning they suffer more from depreciation. Diesel vehicles tend to depreciate slower than petrol cars as they are generally more fuel efficient, with petrol-engine saloons tending to suffer the most. For example, a Ford Focus 1.0-litre petrol Ecoboost with Zetec trim costs £12,000 less than a 1.5 TDCi 120 model in the same spec. Despite this, the diesel model will be worth £1,050 more than its petrol counterpart after three years.
The average mileage is around 10,000 miles a year. Mileage is one of the biggest factors that affects the value of a car – the more miles, the more wear and tear to the vehicle and the less a car is worth over time. If a new car has an RRP of £20,000 and is sold with 40,000 miles on the clock a few years later, it would be worth around 40% less at resale based on mileage alone.
You don’t have to worry about mileage and depreciation when it comes to leasing, as the payments are based on an annual mileage allowance as stipulated in your contract. It’s vital to choose a mileage allowance that accurately reflects your requirements, as you’ll be subject to excess charges if you exceed your mileage limit.
The general condition of a car will affect depreciation, as damage to the bodywork, interior and exterior will reduce the resale value. Modifications like a new stereo, spoiler or alloy wheels can also impact how much a car is worth, as most buyers will prefer purchasing the model in its original condition. It’s important to keep a complete service history of your car, as regular maintenance and proof of your car’s condition will reduce depreciation.