Depreciation: The cost of ownership
99% of cars depreciate in value, meaning as soon as you buy a car it will be worth less than the price you paid for it. And brand-new cars depreciate especially quickly. The majority of new cars lose up to 60% of their value in the first three years. You should consider depreciation as one of the costs of ownership, along with servicing, maintenance, insurance and fuel. If you purchase a car with a finance agreement, you may face more depreciation than a cash buyer due to the interest you’ll pay on top of the screen price over the finance period – together referred to as ‘total amount payable’. However, once the finance agreement ends you have the option to sell your car and release cash if required.
With leasing, you don’t have to worry about depreciation because you won’t own the car and hold that risk. The amount you pay to lease a car is the difference between the value of the car new and the anticipated value once you hand the car back. This is the depreciation, as the finance company will sell the vehicle on once you hand it back. So, if a car is worth £20,000 new and you want to use it for three years with 10,000 miles per year, the finance company may predict the car will be worth £6,000 once the agreement ends. Therefore, you’ll need to pay £4,000 over three years.