Car depreciation – Everything you need to know

What is car depreciation?

Quite simply, car depreciation is the difference between what you pay for a car when you buy it and what you get back when you come to sell or trade in your trusty vehicle. Whilst that might not sound like a big deal at first, depreciation is actually one of the biggest costs to a driver alongside fuel. Take brand-new cars, they lose value at a higher rate compared to used vehicles. In the first three years, a new car can lose up to 60% of its value and much of that is in the first year.

So why does car depreciation matter? And how does car depreciation affect you? Simply put, it is an important aspect to consider before buying a vehicle. Why? Because it will have a direct impact on how much money you get back when you come to sell. Whilst the car depreciation rate differs from make and model, the principles remain the same. All cars lose value over time. However, there are various factors and influences at work in car depreciation. Read on to find out more.

How does car depreciation work?

Car depreciation works as soon as you purchase a new car and drive it off the dealer’s forecourt. Depending on the make and model, it could lose as much as 40% of its value in the first year. In three years’ time, if you travel 10,000 mile per year, the average car could lose up to a whopping 60% of its value – a massive sum of money to lose out on should you come to sell. In cash real terms, that means if you bought a new luxury car at £60,000, at 60% depreciation it’d lose £36,000 in just three years!

However, there are makes and models that are seen as more desirable and reliable so better hold their value, with the least depreciating cars losing only 10% in the first year of sale. Also, the rate of depreciation typically slows with age, meaning older used cars are less impacted by it. Vehicles that are 8 years of age, for example, have often done most of the depreciating by then.

How does car depreciation affect buyers and sellers?

Now we know how car depreciation works, it should become clear as to why it’s important when buying or selling a car. As one of the biggest costs facing drivers, it really is important.

For buyers, you’ll want to look at the car depreciation rate carefully. After all, choosing a make and model that has the least depreciation means it’ll hold its value for longer. And a car with a slow depreciation rate will save you money in the long term. Also, this factor could influence your decision as to whether you buy new or nearly new. Bearing in mind, a nearly new car around two to three years old, after its initial depreciation, could prove better value for money (and obviously cheaper to buy) than brand new.

For sellers, having a vehicle that keeps its value means you’ll see a better return when you come to sell or trade-in your car. Least depreciating cars won’t lose as much in the first three years, which means you’re more likely to recover a better sale price that’s closer to what you paid, compared to cars that depreciate the most. It’s an important aspect all drivers should consider, doubly so if you like to change vehicles regularly or drive the latest models. You can find out how much your current vehicle is worth right now with our Free Car Valuation.

What influences car depreciation?

We know what car depreciation is, how it works, and why it’s important to both buyers and sellers, but what influences car depreciation? There are lots of factors involved. Some might surprise you.

• Brand and model: different car brands and models depreciate at different rates. Vehicles that have a strong reputation for reliability and that are in high demand will tend to keep their value longer, for example the Toyota Landcruiser and Range Rover Sport. Cars that have low demand and are widely available on the new and used market – such as the Fiat 500L and Maserati Quattroporte – and those with poor reliability records will typically depreciate faster as there will be fewer potential buyers. Similarly, newer models tend to hold their value, whilst the older ones they’ve replaced lose value. Popular trim levels and optional extras will also impact depreciation.
• Mileage: the more mileage you do in your car, the faster it will depreciate and the less it will be worth. Average mileage in the UK is around 10,000 miles a year, going way above this figure will lead to greater depreciation, especially in those all-important first three years of purchase. We have an expert guide that goes into more depth about the importance of mileage in Age vs Mileage.
• Fuel economy: has become increasingly more important to drivers and that is reflected in the car depreciation rate. Fuel efficient vehicles that are cheaper to run are desirable on the used car market and will typically depreciate slower. Cars like the Mini Hatch and the Mercedes-Benz A-Class are both fuel efficient with a slow depreciation rate.
• Size and cost: car body type impacts depreciation too. Smaller vehicles like city cars and superminis – such as the Mini Hatch and Renault Zoe – usually cost less to buy, are fuel efficient and cheap to run, which often results in slow depreciation. On the other hand, luxury cars like the Mercedes-Benz SL, and larger models such as the Citroen SpaceTourer, cost more to buy initially and may cost more in fuel, parts, and maintenance – for these reasons they tend to depreciate faster. Remember, the more you pay for a car the more you stand to lose if it is one of the cars that depreciate the most. For example, a £10,000 supermini losing 40% of its value is a loss of £4,000. However, a £60,000 luxury SUV depreciating at 40% is a staggering loss of £24,000. Discover more about the pros and cons of all the different vehicle sizes in our in-depth car body type guide.
• Safety: the safety rating of a make and model can have a direct impact on its depreciation rate because it affects its desirability. Likewise, individual cars that have maintenance problems, known issues, or that have the failed their MOTs will lose their value quicker than well-maintained vehicles. Widespread faults and manufacturer recalls can also negatively impact the car depreciation rate. After all, vehicle safety is an important factor to buyers. If it’s an aspect you’re interested in, check out our safety features guide, which goes through all the latest car equipment designed to keep you safe.

As you can see, there is already a lot to take into account when it comes to car depreciation. But it doesn’t end there. There are even more factors to be aware of:

• Condition: keeping your car in a like-new condition will help keep its value. Cars that fall into disrepair, however, will lose their value much quicker. Popular or unusual colours can also affect the car depreciation rate, as well as modifications or changes to the original build.
• Warranty and service history: If your new car is still covered by its warranty that can add to its value and help secure a higher sale price, especially if there’s a few years left on it. Also, following the recommended service history shows potential buyers you care for the condition and maintenance of your car, increasing its desirability.
• Previous owners: the fewer the better is the maxim here. The more owners, the more of a chance of issues in the past, and the car depreciation rate will negatively reflect this uncertainty.
• Road tax: cars that cost less to tax each year (typically smaller vehicles) are desirable to many buyers and usually depreciate slower because of it.
• Compliance: stricter emission standards have also led to car depreciation. In London, there is the Ultra Low Emission Zone (ULEZ) charge based on exhaust emissions, and Birmingham is soon to see its version, the Clean Air Zone (CAZ). Cars that do not meet the Euro 6 emission standards, keeping emissions below a set amount, have started to depreciate faster in light of such charges, which more and more cities are likely to use. Similarly, concerns over diesel pollution have impacted the depreciation rate of diesel cars.

As you can see, there’s a lot that influences car depreciation. And there are other things beyond your control that have an impact too, such as manufacturer emission scandals and recalls.

How much does a car depreciate each year?

How much does a car depreciate per year you ask? Well, that depends on all the factors that influence car depreciation. However:

In the first year, a new car will typically depreciate 10-40%, losing value the very moment it’s driven off the dealer’s forecourt. By three years, that same new car, driving an average of 10,000 miles per year, could have lost as much as 60% of its value. At five years, the car’s depreciation will have slowed and it won’t lose as much in value. By eight to ten years, the average car depreciation has run its course and it’ll stop depreciating.

But why does a car depreciate each year? Quite simply, the more a car is used, from more mileage, to more owners, and general wear and tear, the more it lowers its value. At the same time, these factors also increase the chance that something might need to be fixed down the line, which lowers the car’s value further.

What’s the formula for car depreciation?

The formula is quite simple: take the initial purchase price and minus the car’s depreciation value, times by the number of years owned. Whilst this won’t provide a true figure of the depreciation – for that you’d have to factor in the many variables such as mileage – it will give you a rough idea.

But stop right there. The easiest way to work this out is to use a car depreciation calculator or a car depreciation table.

Car depreciation calculators UK

Using a car depreciation calculator is a great way to get a more accurate idea of a car’s depreciation rate. Just bear in mind the results you get are a guideline, as the real-world depreciation of a car will vary. Nonetheless, they are a useful tool for buyers and sellers. Most UK car depreciation calculators:

• Let you enter your numberplate to create a more accurate valuation
• Use data from the DVLA
• Include the car’s mileage
• Include MOT results
• Use sales information from private databases, sales records, or trade industry data

Using all this information, car depreciation calculators can provide real-time results that reflect the trends of the market, car sales, and actual transactions. This gives you a much better idea of the depreciation rate of your car, or the vehicle you’re looking to buy, showing you what it’s currently worth and how much value it will lose over a number of years.

Another way to check on current market trends is to see what cars are selling for right now. You can do this with our handy Car Price Guide.

Car depreciation tables UK

Car depreciation tables work a lot like car depreciation calculators. They’ll provide you with a forecast and breakdown of the value of your car’s make and model, annually or after a selected number of years. You can see the cost of maintenance, fuel, and other expanses, as well as the car’s average depreciation. Again, these provide a good guideline, rather than real-world figures. Nonetheless, car depreciation tables are very useful for comparing vehicles, giving you a good idea of the costs involved.

What are the averages for car depreciation in the UK

New car depreciation rate in the UK averages at 15-35% in the first year. In the third year – whilst it can reach as high as 60% – depreciation typically averages around 40-60%. The fifth year of a car’s lifespan, meanwhile, sits around 60-70% depreciation. That means the average 5-year-old car will have lost well over 50% of its original value. A car that’s 8 to 10 years old, on average, will have depreciated by 80% – its value now just 20% of its initial starting price.

Why does it average this way? Well, the older a car gets the less desirable it usually is to other buyers. Newer models may have taken the spotlight too, with new features and technology adding to the depreciation of older models.

How to reduce your car’s depreciation?

No matter what vehicle you’ve bought, there are practical things you can do to reduce your car’s depreciation. One of those is the proper maintenance and care for your car, keeping it in a good condition, which is always important in a sale. Other things you can do to reduce your car’s depreciation include:

• Keeping the car’s mileage low
• Keeping service records and receipts
• Maintaining your car to manufacturer recommendations
• Using manufacturer parts to repair damage
• Keeping the car clean, smoke and pet free
• Removing any body modifications
• Avoiding MOT failures

What are the slowest depreciating cars in the UK?

All of the slowest depreciating cars in the UK, from the Best Used SUVs that Hold their Value, to the Slowest Depreciating Electric Cars, have a number of things in common. Mainly, they are very popular and in high demand, laying claim to either strong brand appeal, iconic status, excellent reliability, or a combination thereof. Several high-end sports cars tick those boxes, as do 4x4s and SUVs.

The ever-popularity of SUVs in the UK is also why SUVs hold onto more of their value compared to estates or saloons from the same manufacturer. Similarly, Petrol-electric hybrids, for their fuel efficiency, eco-credentials, and range, also tend to keep their value well – those being desirable traits for today’s drivers. Take a look at some of the slowest depreciating cars in the UK below:

Top 10 cars that depreciate slowly in the UK

1. Lamborghini Urus
2. Toyota Landcruiser
3. Porsche Cayman
4. Porsche Cayenne
5. Volkswagen T-roc
6. Porsche Boxster
7. Range Rover Sport
8. Nissan GT-R
9. Land Rover Defender
10. Tesla Model 3

What are the fastest depreciating cars in the UK?

When one type of car becomes more popular and in demand, naturally others see a decline on the market. So, as SUVs and hatchbacks continue to rise in popularity, family saloons and estates will likely drop in value.

Generic models from known brands can also be quick to depreciate, as their reputation for quality might not meet the standards of similar cars that are popular. On the other side of the fence, luxury cars by top-quality marques can also depreciate quickly for the sole reason their original sale price is too high for the used car market. We think some of the fastest depreciating cars in the UK will surprise you:

Top 10 fastest depreciating cars in the UK

1. Mercedes-Benz S-Class
2. Audi A8
3. Subaru Impreza
4. Aston Martin Rapide
5. BMW 2 Series
6. Bentley Mulsanne
7. Mercedes-Benz CLS
8. Maserati Quattroporte
9. BMW 4 Series
10. Fiat 500L

Depreciation is one of the major costs that car buyers face when purchasing a vehicle. Whether you are buying a new or used car, take the time to look into its depreciation value so that when you come to sell, you’ll get the best possible return for your money.