With the exception of our homes, for most people, cars represent the largest investment we make throughout our lives. However, in almost all cases, from the minute you drive a car off the forecourt, it is already dropping in value, and some new cars depreciate at a truly alarming rate.
What is car depreciation?
The term ‘depreciation’ refers to the difference in the price of your car when you bought it new and the value it will attain when you come to sell it. Motoring experts suggest the average UK car will lose between 15% and 35% of its worth within the first year of ownership – with that figure rising to 50% or more over three years. Indeed, recent research suggests depreciation is the most expensive ‘running cost’ of cars and could amount to as much as three times the money spent on fuel.
Primary reasons for car depreciation
Pretty much all cars depreciate, but some fall in value quicker than others. The main reasons for a faster or slower rate of devaluation include:
- Mileage: By far, the greatest contributory factor to the drop in value of a car is its total mileage. Car experts suggest cars should do around 10,000 miles per year. If your car exceeds that figure, it will have a detrimental effect on the final price you can attain when you come to sell.
- Number of owners: The more owners a car has had, the greater the fall in value.
- Reliability: Not all cars are created equal, and it’s common knowledge in the motor industry that some are more reliable than others. You should always check customer satisfaction surveys and also consult respected motoring press for ideas on which cars run longest with the fewest problems.
- Service history: Just like many other things in life, if a car is serviced properly and regularly, it will have a much better chance of lasting longer. If you can provide a full service history when you come to sell the vehicle (including receipts, etc.), you’ll be able to command a higher price for the car. Remember too that all this data is referenced in an HPI Check free for prospective buyers.
- Condition: Interior and exterior scratches or scrapes will reduce a car’s value – as will any damage to the bodywork.
- Warranties: Ideally, a car will have at least three years’ warranty cover; however, some manufacturers now offer as much as seven years – which can be a big bonus for prospective buyers.
- Size of car: As a general rule, larger luxury vehicles tend to depreciate much quicker than smaller cars, mainly due to their running costs and higher repair, parts, and maintenance bills.
- Desirability: Some car models have been around for years, receiving only minor upgrades or tweaks which might hint at their popularity. However, to have the best chances of holding value, you should aim to buy more recent models.
- Cost of road tax: If a car uses excessive petrol (common with larger models), it will cost more to tax, be harder to sell, and lose value much quicker. Again, this is another reason why buying a smaller car isn’t just a good idea from the point of view of fuel costs – smaller vehicles hold their value in a multitude of other ways too.