It’s sad, but it’s a fact – from the moment you purchase a brand-new car, it begins to decrease in value. This is known as depreciation.
But how can you reduce the effects of depreciation on your car? And when should you sell-up?
You’ll find the answers to all of your questions in Bobatoo’s car depreciation guide here.
What is depreciation?
Depreciation is the difference in value of a vehicle between the time of purchase and the time of its next valuation – usually when it is next sold.
So, how much does a car depreciate? The drop in a vehicle’s value will vary depending on its make and model, but a brand new car will usually depreciate by anywhere between 15-30% within its first year on the roads – and then up to a further 55% more over the next three!
That means that, if you purchase a brand new car for £30,000, it may well have lost around £10,000 in value just 12 months later.
The estimated rate of depreciation in a vehicle can be seen in the car depreciation graph below, where the value declines rapidly throughout the first 3 years before slowing down:
What affects the depreciation of a car?
There isn’t much you can do to stop the value of your vehicle decreasing, but there are a number of factors taken into consideration when the value is calculated. These include:
The higher the mileage on your vehicle, the less it will be worth. Some sources suggest that a car’s depreciation per mile sits at around 0.065 pence, meaning that you would lose out on around £6.50 for every 100 miles – and that’s without considering all of the following factors…
Number of owners
The fewer people that own the vehicle, the less likely it is to depreciate. A high number of owners might indicate that the car has had issues, hence why it’s been sold on so many times. You can check these details in the vehicle’s V5C registration or logbook.
This is out of your hands, but cars that are more fuel-efficient tend to hold their resale value better than some of the diesel-guzzlers you see on the road.
Some brands and models can depreciate slower than others, simply because they’re popular. If the manufacturer of your car releases a similar, but updated model every single year then your vehicle will become outdated and less desirable relatively quickly, pushing its re-sale value down further.
Some manufacturers sell their vehicles with a warranty for as long as 10 years or for up to 100,000 miles. If there is still a lengthy warranty left on your vehicle when you sell it, the buyer may be willing to pay a little extra.
Keep a hold of your vehicle’s service history as this can make a huge difference when selling in the future. Make sure that the vehicle is serviced regularly and that its service book is stamped every time it goes in for a service.
If your car is covered in dents, scratches, rips or tears, its value will decrease. Wear and tear is expected, but look after the vehicle as best you can if you want to maximise its future value.
Niche modifications & colours
Not everybody wants a massive spoiler on the back of a bright orange car which is so low to the ground that it can barely climb a speed bump. You want the market for a future buyer to be kept as open as possible, so avoid any major modifications.
How to minimise depreciation
There is nothing you can do that will stop your car’s value from falling, but you can slow down that process on even the fastest depreciating cars by ensuring that you adhere to all of the recommendations above.
Another way to minimise the impact of depreciation is to avoid buying a brand new car in the first place. Opting for a used (or nearly-new) model will allow you to both take advantage of the vehicle’s depreciation by getting it at a lower price and avoid making a huge loss yourself, as depreciation is at its highest when a car is brand-new.
Selling your car at the right time is another way of minimising the impact of depreciation. If you can, try to sell your car before a newer model is scheduled for release. This will make sure that your vehicle is still desirable as it is still the most up-to-date model on the market.
You could also consider leasing a car. Leasing allows you to spread the cost of a new vehicle by paying monthly over a set period of time (usually 1 to 4 years). This makes getting a brand-new car more affordable and means you’re not losing out on all that depreciation you would have had if you’d bought it outright.
For more information on leasing a vehicle, read Bobatoo’s complete guide to leasing or visit Complete Leasing to find some of the best leasing deals in the UK, including short-term and longer term contracts.
How do you calculate the depreciation of a car? – An example
If you’re worried about the resale value of a vehicle, there are a number of car depreciation calculators online which can give you an estimate of how much your car’s value will fall over time. Bobatoo recommends this one here.
There is also a general car depreciation formula, which works out roughly how much a vehicle will fall in value over 12 months:
Yearly Depreciation = (Initial Cost – Sale Value) / Age of Vehicle
For example, if you purchase a vehicle for £20,000 and sell it for £5,000 in 10 years, it would have depreciated by £1,500 every year.
Can I insure my car against depreciation?
Yes – this is called GAP insurance.
Gap insurance can be used to reduce the effects of depreciation in the event of your vehicle being stolen or written off and covers the difference between the current market value of the car paid out by your car insurance provider and the price you actually paid for it.
Bobatoo works closely with some of the UK’s top insurance providers to help find you a car insurance quote that suits both you and your wallet.
To get your free, non-obligatory car insurance quote today, simply click the green button below!