Car depreciation – the difference between what you spend on a vehicle and the amount you get back when you sell or trade it in – is one of the biggest and most overlooked costs when it comes to owning a car. When you buy a vehicle, you should frequently ask yourself when will your used car lose value?

Why? Because car depreciation ought to be considered throughout the ownership of any vehicle: from the moment you look at purchasing your car, to how well you maintain it during its lifetime, to the day you come to sell your car or part-exchange it.

After all, car depreciation is a dreaded thing for owners looking to make a good return and sale later down the line. That’s why we’ll be looking at what’s the depreciation on a new car and how much do used cars depreciate per year.

Of course, potential buyers take note! Depreciation can be a true blessing for car buyers on a budget. For example, a nearly-new vehicle that has depreciated heavily – providing that it’s mechanically sound – can be a real bargain entrance into vehicle ownership.

How does car depreciation work?

Car depreciation works on several factors, some you can control, others you can’t. And the rate of depreciation – how fast or slowly a car depreciates – can vary wildly because of these of factors. The most common influences on car depreciation include:

  • The brand and model of the vehicle
  • Its annual mileage and fuel economy
  • Its age, size, and initial cost
  • Its general condition, wear and tear
  • Its service history
  • Its number of previous owners
  • Its safety rating

As you can see, depreciation is not limited to just age. The rate can also increase or decrease depending on the above factors. In addition, some cars lose value quicker than others, whilst some keep their value for longer. For example, generally speaking diesel models tend to have better residuals than their petrol counterparts. Fuel-efficient vehicles usually depreciate more slowly too, because of a larger demand for cars with low running costs.

And when it comes to user-influenced depreciation factors, if you keep your vehicle in a good condition and keep the mileage relatively low, then it will have a better value when you go on to sell it. Also, make sure that servicing is done according to the manufacturer’s schedule and keep a comprehensive record of the service history. Promptly attending to any repairs required can also make for better residual values.

When do used cars depreciate? And how much do cars depreciate per year?

Car depreciation starts the very moment you buy a new vehicle and drive it off the dealership’s forecourt onto the road. From then on, the car will continue to depreciate over its lifetime, reaching a stable point (typically around 8-10 years) where the depreciation comes to a slow finish.

When bought new, cars typically lose 10-40% of their value in the first year of ownership. In fact, most cars usually lose the most value in their first 3 years, with the average car – travelling 10,000 miles a year – losing up to 60%. That means if you purchased a nearly-new Ford Fiesta for £10,000 and then went on to sell it for £4,000 in 3 years’ time, the car will have depreciated by £6,000 (60%) – a significant amount for sellers.

And whilst the rate of depreciation may be the same between cheap and expensive cars, the value they’ll lose is not. Let’s say a small city car and a luxury saloon both have a depreciation rate of 20% in the first year. Drivers who buy the city car for £10,000 will lose £2,000 in that first year to deprecation. However, those who spend £50,000 on the luxury saloon can expect to lose a massive £10,000. Again, car depreciation is a significant factor all motorists should consider throughout the ownership of their car.

So, when is best to buy to avoid depreciation?

The ideal time to buy a second-hand vehicle is as it reaches its third or fourth year. By this point, it will have likely lost around half of its new value, and the technology inside won’t be so old as to be outdated. Another advantage of buying a vehicle at this age is that manufacturers typically release a new model every 4 to 6 years. And when new models come in, the older cars usually depreciate further. It’s often a great time to grab a fantastic used vehicle at a bargain price.

Opting for a pre-owned car that is older than 4 years is also a good option. Why? Because a 5-year-old model – while it may not boast the latest features – won’t lose as much in depreciation (compared to a brand-new model) during its ownership. And if it has been well-cared for and you continue to meet its maintenance needs, then you could have a happy car that keeps going for many more miles and years. Finally, a vehicle over 8 years old will have done nearly all the depreciating that it will do. This means that you could potentially buy it and sell it on for the same amount.

Whatever car you choose, to get the most for your money, research the model you’re interested in and look around before buying, and always take the time to consider car depreciation. It’s a significant factor that can massively impact the return you make when you come to sell or trade-in the car later down the line. In other words, it could help you save money in the long run.

If you want to know how much you’d get for your car, you can get an instant Free Car Valuation with us today. If you’re a buyer wanting more info on how much a vehicle should sell for, use our free Car Price Guide to get up-to-date knowledge on the current market.

Live More. Search Less. And if you want more info on how and why car’s lose value, check out our in-depth, one-stop Car Depreciation guide – it’ll tell you everything you need to know on the subject.