If you have newly passed your test or aren’t familiar with the car market, you may wonder what depreciation means. In simple terms, depreciation is the word used to describe the difference between the value of car when you buy it, versus the value of the car when you come to sell.
So how does depreciation work?
Very simply, cars drop in value. This drop takes place immediately after the sale of your car and progresses until the day that you sell it.
Why does this happen?
Cars are a commodity. They are designed to be used for a time and eventually be replaced. Parts wear, paintwork gets tarnished, interiors go dull etc. This as a result makes a car less desirable and so worth less.
What sort of factors affect depreciation?
There are a massive, massive number of factors that can lower the value of your car (aka cause depreciation). These include but are not limited to: mileage, age, cosmetic appearance, standard kit, modifications, paintwork, damage, popularity, rarity, number of owners etc.
Do some cars go up in value?
Yes, but they are very few and far between. When a car goes up in value this is called appreciation.
Which cars appreciate?
Extremely rare cars quite often go up in value. Cars with a high initial selling price that do very few miles and are from a prestigious marque will go up in value – such as Ferraris, Lamborghinis etc.
What does this mean in terms of buying a car?
Depreciation has the most impact on when buying a new car. You can lose up to 10% of the resale value of your new car as soon as you drive it off the forecourt. After three years, up to 50% of the value of your car could be lost. After this point, depreciation tends to slow down.
What do you recommend?
Our suggestion, if you want to save as much cash as possible whilst still picking up a decent motor, is aiming for a car that is around three or four years old. This will mean that the biggest depreciation hit has been hit by the previous owner(s) and you’ll get a far better value used car. Go low mileage and high spec, buying a car with decent history. This should mean you can sell the car on without having lost too much money.
The final word
Depreciation is only a factor if you are looking to keep the car for a time and then sell it on. If you are like me, you’ll keep a car until it simply is not cost effective to keep it on the road. In this respect, depreciation is largely irrelevant. That is, until you come to part exchange/privately sell it. Everything has a value, even with galactic mileage and a few bodywork dings. Take the best car of your car that you can and it may save you money in the long run.