Often overlooked and ignored yet one of the biggest running costs on a vehicle – depreciation! Depreciation is the difference between the amount spent buying a car and the amount you receive once you decide to sell or trade it in. In the UK, although buying a car can considered cheap, as soon as you drive it off the forecourt, it starts to lose its value.
Experts have noted (based on an average mileage of 10,000 miles per year) that an average new car will have a residual value of approximately 40% of the original price after three years having lost around 60% of it value.
Granted, depreciation does vary depending on whether you’ve purchased a small cheaper or expensive luxury car, however it is hugely affected by mileage and condition and fluctuates between different models. This means that in the long run, perhaps a slightly more expensive car with good residuals could cost you less than an older car.
How can understanding depreciation be of benefit when purchasing a new car? Here are some things to consider:
Some cars depreciate slower than others, the following factors affect depreciation:
- Fuel efficiency – because of increased interest in vehicles that are cheaper to run, fuel efficient cars tend to depreciate slower
- Demand vs Supply – there are times waiting lists are necessary for certain models meaning that the demand is higher and exceeds supply, this may also cause depreciation to slow down
You may also want to consider buying a used car – depreciation slows down as cars get older. It is suggested that the best option is to buy a five-year-old car. You may not have the latest features, but it will not lose much value, however this is dependent on mileage, this option is only worth it if your mileage is below 10,000 miles a year.
Depreciation is inevitable, you may be able to estimate the potential value of your car at the point of resale, however that prediction is highly influenced by external factors such as market assumptions and the one variable we can somewhat control: the future condition of the car. Here is some advice by experts at ALA that will enable you to maximize retained value:
- Make sure the car is well kept – clean, good condition and promptly deal with any necessary repairs
- The lower the mileage, the lower the depreciation
- Ensure all servicing is done according to the manufacturer’s schedule