Car Depreciation Rate: What Is It & How Can You Avoid It?
What is a Cars Depreciation Rate?
Car depreciation, for many, is probably the worst thing about owning a car. Depreciation is the difference between the amount your vehicle is worth when you buy it and its value over time.
Unfortunately, all cars lose value. Typically, new cars have the fastest depreciation rate, losing the most value in their first three years of life. Car value can drop by 15-35% in the first year and up to 50% (or more) over three years.
While you can’t avoid depreciation, there are steps you can take to help limit its impact and help your car hold its value for longer.
What Factors Affect a Car’s Depreciation?
While it’s true that some car makes and models depreciate faster than others, several other factors can also affect the rate of depreciation:
Car Desirability and Reliability
Just like fashion trends, different cars become more desirable at other times. But some have earned enduring popularity, just as the mini from the 1960s. This popularity is often linked to reliability; manufacturers like Ford have spent decades building a reputation for high production standards and solid construction. The more reliable or classic a car makes or model, the less likely it is to depreciate quickly.
Fuel economy and size
While you might dream of a Range Rover or family-friendly estate, the bigger the car, the faster it depreciates. And bigger cars also tend to use more fuel, which can concern potential buyers. These cars can be more expensive to run, worse for the environment, and ultimately, less desirable over time.
Cars depreciate by mileage. The more you drive, the quicker you lose value. A vehicle that’s been put through its paces and racked up the miles will depreciate faster than one that’s barely hit 10,000 miles.
Every car will go through wear and tear over time, but buying a car in good condition will help it hold its value over time. Look out for any damage to the interior – scuffed seats or frayed seatbelts – and the exterior and bodywork can all affect the car’s depreciation rate.
Number of owners
Just like mileage, the number of owners is another case of less is more. The fewer previous owners a car has had, the better it’ll hold its value.
When buying a used car, look for a full-service history indicating how well the vehicle has been looked after. It should show where and when the car was serviced and whether it aligns with the manufacturer’s guidance.
How can I Reduce my Cars Rate of Depreciation?
Choose a used or nearly new car
The car’s depreciation rate is quickest in a car’s first three years of life. That’s why opting for a nearly new or used car on PCP finance could be a better value over time. Not only will you likely pay less than you would for a brand-new vehicle, but it will also depreciate more slowly.
Keep mileage low
Driving long distances might be unavoidable depending on how you need to use your car. But, if you can keep your mileage low while you own the vehicle, it could slow down the depreciation rate.
Looking after the car
Taking care of your vehicle will slow the car’s depreciation rate. Any damage to the interior or exterior of your car could cause it to lose value. The more careful you can be – especially when navigating narrow roads or tight parking spaces – the better. Ensuring you get your book in a car service regularly and carry out any necessary repairs quickly can also help it hold its value.
While it can be tempting for younger drivers to supe up your new wheels with extra-low spoilers, wide wheels, and flared wheel arches, these modifications can limit the pool of buyers in the future and impact its value over time.
Stick to popular car colours!
You might love your car’s bright yellow paint job or distinctive interior, but potential buyers might not feel the same. The most popular car colours are black, grey, and white – 60% of newly registered cars come in these colours. And while trends come and go (green was popular in the early 2000S), neutral colours can stand the test of time.
Sell at the right time
Depending on your car, selling at the right time can help you get the best possible price. You might struggle to sell a convertible in the depths of January. Still, a family-friendly people carrier could fly if you advertise it ahead of the summer holiday season.
Can you Beat Depreciation on a Car Purchase?
Buying a new car that will likely depreciate by half its value in just three years is a concern for many people. Suppose you will finance a £20,000 vehicle over three years on PCP car finance (although you only pay for the amount, the car depreciates). Typically, that is still 50% or £10,000 spent plus interest for the privilege of driving it for three years.
Instead, you could drive that same car at three years old on a used car PCP finance at a fraction of the cost because, as you already know, your monthly repayments are based on the vehicle’s depreciation, which is much lower after three years.
Do you know how popular used car finance deals have become over these recent troubled years? We are not discussing a secondhand car from Dodgy Dave’s backstreet garage. No, the used cars for PCP finance are quality condition vehicles with low mileage and warranties from reputable dealers.