It’s a fact of buying a new car that it loses value over time – a process known as depreciation. You lose 20% of its list price in VAT alone the second the dealer hands over the keys. Used cars aren’t immune from depreciation, either. It’s often the single biggest cost of owning a car, yet most people don’t really think about it.
There are some cars that don’t depreciate or even appreciate – increase in value – but they’re rare collectors’ items. In every other case, you just have to live with depreciation. But there are ways you can minimise its impact, even if you can’t avoid it entirely.
In this guide, we’re going to look at what you can do to minimise your car’s depreciation or, to put it another way, maximise its value when the time comes to sell or part-exchange it for a new car. There are things you can do when buying a car in the first place, and while you own it. But first, let’s consider exactly what depreciation is.
What is depreciation?
Depreciation is the loss of value over time. Virtually everything you’ll ever buy depreciates to some extent. Everything from clothes to furniture, to electronics, to books and ornaments probably won’t be worth as much as you paid for them a few years down the line. The value that’s left is known as residual value.
Why does depreciation happen? There are many factors involved. An item’s retail price includes taxes, transport costs and profit margins, and that’s all money you’ll never get back when you sell something on. An item’s condition is also a factor, as is its reputation in the market and whether its been rendered obsolete by new technology or changing fashions.
Cars are just as susceptible to these factors as any other consumer good – perhaps even more so. Car depreciation is also more obvious because the numbers involved are so much bigger. Many cars can depreciate by 50% or more in just a couple of years, translating to tens of thousands of pounds in lost value.
Now that we’ve covered what depreciation is, let’s get into how you can minimise your car’s depreciation and maximise its value.
Buy the right car
This is by far the most important factor in minimising depreciation. Different cars depreciate at different rates and choosing the right car with a lower rate of depreciation – sometimes referred as a higher residual value – could save you a big pile of money in the long run.
It isn’t obvious which cars have low rates of depreciation and, conversely, which ones have high rates. Cheap cars such as the Dacia Sandero often have quite low depreciation but expensive, apparently desirable luxury saloons such as the Mercedes S-Class are usually catastrophically bad for it.
So, when you’re shopping for a new or used car, studying the depreciation rates of the options on your shortlist should inform your decision. It could be the one with the lowest rate isn’t your preferred choice, but it could well be the most cost effective long-term.
On the flip side, studying depreciation rates can help you pick out a real bargain if you’re looking for a used car you intend to keep for a long time.
Choose the right specification for your car
Even within a single car’s model range, depreciation rates can vary significantly. High-spec models usually have lower rates than entry-level models, petrol engines might depreciate less than diesels.
Your choice of colours and wheels can have an impact, as well, with positive or negative effects. Other options such as an upgraded infotainment system or heated seats probably won’t bump up the residual value but can make a car easier to sell second-hand.
Have your car serviced regularly
Keeping on top of your car’s servicing schedule and dealing with any random issues that come up – such as recalls and component failures – help to maximise its value when the time comes to move it on. To that end, it’s important to keep the car’s service history fully up to date.
That means making sure the service book or digital service record is properly filled out every time it goes in for routine servicing. Also keep a file of receipts and invoices for the work carried out. With all that evidence, a buyer can be confident the car has been properly looked after. As such, they’ll be prepared to pay a higher price for it than they would for the same car with little or no history.
Keep your car clean and tidy
Cleaning your car can be a pain, but doing so can help maximise its value. Dirt can become ingrained in paintwork, upholstery and plastics, and fill up all sorts of nooks and crannies in short order if you don’t vacuum out the interior from time to time.
A car that isn’t regularly cleaned can start to look shabby pretty quickly, and it’ll be worth less than a car that’s been kept spick and span. Buyers also tend to question how well a shabby-looking car has been maintained, which also makes it harder to sell.
Keep the mileage down
There’s a perception that a car with high mileage is going to be less reliable, therefore it’ll be worth less than the same car with low mileage. Doing too few miles can cause reliability issues, as well, but that fact isn’t widely recognised among buyers.
There’s a happy medium, though. Around 8,000 to 10,000 miles per year is sufficient to keep your car healthy and won’t unduly impact its second-hand value. But don’t let concerns about depreciation stop you using your car as much as you need/want to.
FAQs
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How much does a car depreciate per year?
or the vast majority of cars, their rate of depreciation starts quite steep and gradually levels out once it’s past about five years old. Essentially because, by that point, the car has less value to lose. In theory, at least, most cars continue depreciating until they’re effective worthless and are scrapped.
Because every car depreciates at a different rate from a different list price, we have to look at averages per year. In the UK, most cars lose about 15-20 percent of their value in the first year, and 40-50 percent by the time they’re three years old. -
How do you slow down depreciation?
A car’s depreciation rate is calculated before it even goes on sale. There are several organisations that do the calculations, but CAP is the industry standard. A huge range of factors is considered including the car’s position in the market, the reputation of its manufacturer and its likely reliability.
Depreciation has to be calculated up front because it determines monthly payments for leasing and personal contract purchase (PCP) deals. With such deals, you’re effectively paying the cost of the car’s depreciation until it’s returned to the lender and sold off.
Because rates are essentially predetermined, you can’t do much to slow down depreciation. However, if you follow the tips covered earlier in this article, you can ensure that your car achieves the best possible price when the time comes to sell it on.
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