Depreciation is one of the biggest, and most overlooked, costs when it comes to owning a car.
The amount you pay for your vehicle and the amount you sell it on for can differ wildly, and this is down to a number of aspects, such as the model of the car and how well you look after it.
As such, deprecation should be a consideration throughout your ownership of any vehicle; from the moment you look at purchasing the car, to how well you maintain it, and when the time comes to sell it on.
While depreciation is a bad thing for a car’s first owner, for motorists on a budget it can be a blessing.
A nearly-new car that has depreciated heavily – providing that it is mechanically sound – can be a bargain entrance into vehicle ownership.
How does car depreciation work?
Price depreciation is defined as the difference between the amount you spend on something and the amount you get back when you sell or trade it in.
For example, if you purchased a nearly new Ford Fiesta for £10,000 today, and went on to sell it for £6,000 in three years time, the car will have depreciated in value by £4,000 – or 40 per cent.
While the rate of depreciation may be the same between cheap and expensive cars, the value they will lose is not.
Drivers who buy a car for £10,000 may lose £2,000 per year in deprecation for the first three years, but those who spend £50,000 can expect to lose £10,000 per year.
When do used cars depreciate?
The rate of depreciation typically slows with age. It is common knowledge that a new car loses value as soon as it leave the forecourt, however this steep decline continues throughout the first year of owning a vehicle. In a best case scenario the vehicle would have lost 10 per cent of its value after 12 months, however in the worst instance, it could have lost 40 per cent.
After three years, the average car – having covered around 10,000 miles a year – will have lost around 60 per cent of its value.
Of course, depreciation is not limited to age, and can increase or decrease depending on a number of factors. Some cars lose value quicker than others, and as a general rule, diesel models have better residuals than their petrol counterparts.
Fuel-efficient vehicles also tend to depreciate more slowly because of a larger demand for cheap-to-run cars.
User-influenced depreciation factors are also a consideration. If a driver keeps their car in a good condition and keeps mileage relatively low, then it will have a better value when they go to sell it on.
Making sure that servicing is done according to the manufacturer's schedule, keeping a comprehensive service record and attending promptly to any repairs require can also make for better residual values.
So when is best to buy?
When buying a car, there are a number of aspects to consider. Price obviously, spec, age, mileage, condition – the list goes on.
To get the most for your money, buyers are advised to research the model they are interested in, and look around extensively before buying.
The ideal time to buy a second-hand vehicle is as it reaches its third or fourth year. By this point, it will have lost over half of its new value, however the technology inside won’t be so old to be outdated.
Another advantage of buying a vehicle at this age, is that manufacturers typically release a new model every four to six years. If you buy a model that is soon to be replaced, then chances are it will have a higher depreciation. (and save you money).
However, that’s not to say that older vehicles are a bad option.
A five-year-old model, while it may not boast the latest features, won’t lose as much in depreciation while you own it. But, the repair and maintenance bill will be higher and there is more chance of a major problem occurring to the car. This will have an effect on your insurance premium, too.
Finally, a vehicle over eight 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.
That said, as the vehicle’s age increase so does risk. If an issue occurs on an older car, one repair bill could cost you more than a year's depreciation if you had bought a newer car.
One final tip is to ask around. Friends or family may know a particular model that promises great residual values. Why not share this post to find out!
After completing his university studies in English and Creative Writing in Cardiff, Jack is now a full time motoring writer at Blackball Media. His love of cars stems from his childhood years when he began to live and breathe all-things automotive.
October 7, 2016