What is Car Depreciation, and How Can I Reduce It?

Most cars lose between 50% and 60% of their value in the first three years of ownership. As surprising as this may seem, it’s an inevitability that’s part and parcel of owning a car. Known as car depreciation, it’s the difference between the amount of money you bought your car for, and what it’s worth now.

With the majority of cars in the UK bought on finance and most of these deals running for three years, selling or trading in a car and being faced with its depreciation is unavoidable. While you can’t stop your car depreciating in value – it happens the minute you drive off the forecourt – there are some things you can do to mitigate the impact.

Here, we’ll provide some pointers on what you can do to reduce car depreciation, including the cars that are most and least susceptible to it, and some tips for retaining your car’s maximum value.

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What is car depreciation?

Car depreciation is the difference between the amount you bought a car for and the amount you get back when you sell or trade it.

Most cars take their biggest hit of depreciation in their first year of ownership, which tends to gradually slow down after the third year. By the eighth year, depreciation stops entirely. Depreciation is often overlooked when buying a car, but choosing a model that will retain its value will save you more money in the long-term than other factors, like fuel economy.  

What affects car depreciation?

Price

Residual car values are shown as percentages of the original showroom price. This makes the variation between small and large cars seem quite small, but in pounds, the difference is actually rather large. A 55% depreciation on an £8,000 city car equates to £4,400; the same percentage fall on a luxury car costing £40,000 means a loss of £22,000.

2019’s top ten depreciating cars

Car model

Depreciation after year 3

10. Infiniti Q50 3.5h Luxe

List price: £43,450

£30,225 (69.6%)

9. BMW 4 Series Convertible 420d Sport Prof. Media

List price: £44,535

£31,060 (69.7%)

8. Hyundai i40 1.6 CRDi SE Nav

List price: £24,000

£16,875 (70.3%)

7. Jaguar XJ 3.0 V6 diesel Luxury LWB

List price: £65,400

£46,600 (71.3%)

6. Peugeot 308 SW 1.5 BlueHDi 100 Active

List price: £21,895

£15,745 (71.9%)

5. Vauxhall Astra Sports Tourer 1.6 CDTi 136 Auto SRi

List price: £26,735

£19,260 (72.0%)

4. Maserati Quattroporte V6 Diesel

List price: £74,320

£53,645 (72.3%)

3. Fiat Tipo 1.6 Multijet DDCT Easy Plus

List price: £20,510

£14,860 (72.5%)

2. Renault Zoe 65kW i Q90 40kWh Dynamique Plus

List price: £29,270

£21,420 (73.4%)

1. Fiat Doblo XL Combi 1.6 Multijet 120 SX

List price: £29,020

£19,358 (74.9%)

Source: WhatCar

Running costs

With demand in emerging markets pushing up the price of fuel, MPG is a key influence on depreciation – and large cars are the worst affected.

Cars of this type might seem like a steal on the used market, but this is only the case if you can afford the running costs. Servicing and parts for a luxury car that was £70,000 when new will all be based on that original premium price. This is why small cars and city cars are so popular in the UK; their running costs are much lower.

Quality

The perception of a car’s quality is no longer a matter of personal opinion. Thanks to websites that compile warranty claims, dealer reviews and the number of recalls a car has generated, quality is now more quantifiable than ever. And, this kind of data directly affects how much depreciation a car will garner.

Similarly, the condition of your car will impact its worth. Scuffs, dents and scratches tend to put buyers off and increase the depreciation come trade-in time.

Mileage

Mileage is another big factor affecting a car’s residual value. High-mileage cars can be worth thousands of pounds less than the same model with a below-average amount of miles on the clock. That said, a car with an unusually low mileage may have been used so infrequently that it’s a cause for concern later down the line.

Model

If the car you’re buying or selling is a model that’s about to be replaced, then it’s probably going to have a high depreciation. As a buyer, you should research beforehand if the car you’re thinking of buying is an outgoing model and see if you can get some sort of discount from the dealer. Likewise, special edition models that feature extras such as leather interiors, are more likely to retain their value.

How to reduce the effects of depreciation

So, while you can’t stop depreciation, there are things you can do to minimise its effects whether you’re buying or selling.

Depreciation When Buying a Car

Choose wisely

It’s easy to be swayed by certain things when buying a car, but just because certain features make for an enjoyable drive doesn’t mean that they necessarily add to its value. Since we’re making depreciation the priority, opt for things what will add value, like built-in sat-nav or leather interiors.

Buy brands known for quality and reliability

It goes without saying that cars that are known for their quality maintain their value better than others. BMW, Mini, VW and Hyundai are all good options, especially because of the latter’s warranty options. Think long term when you are buying a new car; research by the AA has shown that it’s less costly in the long run to buy an expensive car than a cheaper one.

Go for sensible colours

You might have a thing for loud, bold colours, but other people may not. When it comes time to sell your day-glo neon green motor, don’t be surprised when people don’t seem to be showing much interest. Buying a car in a popular colour will make it easier to sell; a simple way to reduce depreciation.

Depreciation When Owning a Car

Maintenance is important

Keeping your car in top condition is perhaps the most important thing you can do. A well-maintained motor is always going to have a higher value than one that is not looked after. Keep the service history up-to-date and repair any damage as soon as possible, and you stand to maintain the highest possible resale value on your car.

Avoid modifications

Modifications may seem like a good idea at the time, but when it’s time to sell your car, you’ll seriously limit the number of potential buyers through these gaudy amendments.

Sell at the right time

Selling your car at the right time can maximise its value. Certain timing factors that can reduce a car’s value include selling in the wrong season, such as a convertible in the winter, or selling your car right after the manufacturer releases an updated model.

We hope you’ve enjoyed this article. Looking for more from Brindley Garages? Head here to check out more news from the motoring world, or if you’re in the market for a new car, see how we can help by visiting our homepage.

Added: 04 November 2019

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