Thinking of replacing your car? Here’s a key thing to take into account…
Here’s a few surprising stats. According to a recent survey, over a quarter (28%) of UK drivers don’t consider depreciation when they set out to purchase or lease a new car. A staggering one in five (20%) think that all cars depreciate at the same rate (men 16% and women 23%). That’s according to a recent survey from insurethegap.com. The survey also found that younger drivers under 35s (34%) are also twice as likely to think that all cars depreciate at the same rate as over 55s (14%).
It’s all a bit shocking, given that depreciation is one of the average motorist’s biggest costs. So let’s get back to basics. Depreciation is the difference between what you paid for a car and the amount you can get back when you sell or trade it in. A new model sheds around 20% of its value when it is driven off the showroom forecourt, and cars typically lose between 15-20% of their value each year. Different makes, models and even colours though, will all hold (and lose) their value differently. All of this is nonetheless often ignored or forgotten about when people are purchasing a car, even though for car owners who like to change their car regularly, the financial effect can be significant.
According to that insurethegap survey, around one in ten drivers say that depreciation is not something they think about. Older drivers are apparently more likely to think about depreciation than younger drivers when they are buying a car. And almost half of drivers (44%) in the survey said they would keep their car until it had been run into the ground; which might explain why so few of the respondents considered depreciation to be a significant issue (men 40% and women 48%).
As a fall-out from the Covid pandemic, we’re seeing some great deals in the new car market at present, which could mean second-hand cars lose their value even quicker if more buyers than usual choose new. However, whatever car you buy, one thing is certain; as soon as you drive off from the showroom, its value will start to depreciate.
Top Ten Tips on Car Depreciation
In addition to a vehicle’s age, where the years of one, three and eight often signify sharp price drops, there are a number of factors that determine a car’s depreciation rate. Some of these apply to all cars based on how they have been used. Others are due to the specific characteristics of a particular make and model.
Key factors affecting the value of a vehicle regardless of the make and model include:
1. Mileage – the ordinary motorist’s average mileage is around 10,000 per year. The more miles, the less your car is worth.
2. Owners – the more owners a car has had, the less it will be worth.
3. Service history & general condition – a full service history from a manufacturer, approved garage or dealership helps to maintain a vehicle’s value. The upkeep and maintenance of a car will also help retain its value, as scuffs and scratches can seriously affect its resale price.
4. Colour – generally speaking, the familiar selling shades of grey, black, silver, blue and white tend to be the best colours for holding their value. Slightly bolder (red) or extreme colours might not have the same demand, so will not have such a high re-sell value.
5. Desirability – if the car in question is in high demand or is rare, the more residual value it will hold. If you are fortunate enough to purchase a model that is on-trend and fashionable, it will suffer much less depreciation, provided it is still on-trend and fashionable when you come to sell it. Similarly, if there is very little demand for your vehicle when new, then you can expect its value to drop dramatically.
You’ll also need to take into account the following factors, which have varying effects on a vehicle’s value depending on its make and model and the needs of potential buyers:
- Economy – models with good fuel economy are more desirable, and therefore tend to hold their value better.
- Vehicle tax – buyers looking to run their car on a tight budget may be put off by high vehicle tax.
- Reliability – mechanically reliable models and those with reasonably priced spare parts are more in demand because they cost less for upkeep in the long term.
- Warranty Length – cars with a long manufacturer’s warranty attract a higher resale value.
- Size – larger cars tend to drop in value more quickly due to higher running costs.