What is Depreciation?

What is Depreciation?

Depreciation is simply the difference between the amount you spend when you buy a car and the amount you get back when you sell or trade it in. It’s often overlooked or ignored when buying a car. Take a look below for some helpful information on car depreciation you should be aware of before making your next car purchase.

Most cars lose between 50% and 60% of their value in the first three years of ownership. The rate of depreciation is dependent on a variety of factors, which fall into three categories: price, running costs and quality – both perceived and actual. By the time you’ve reached the eighth year of ownership, depreciation reaches a standstill.

Depreciation is often overlooked when buying a car, and consumers tend to focus on fuel economy instead. While economy is important, choosing a car which depreciates slowly will save you more money in the long run. According to research by CAP Automotive, depreciation will cost the typical motorist three times as much as they spend at the petrol pump. CAP Automotive say that choosing a car that holds its value well delivers much bigger savings over time than focusing on fuel efficiency.

How to reduce depreciation

  • Do your research before buying a car.
  • Buy a nearly new or used car to avoid the steepest depreciation.
  • Maintain your car well – a full service history gives potential buyers peace of mind. So remember to keep all your car documents including service records and receipts safe and in one place.
  • Keep the mileage down.
  • Look after your car and repair any damage as soon as possible.
  • Sell at the right time of year – for example, convertibles in the summer and 4x4s in the winter.
  • Avoid ‘boy racer’ modifications such as spoilers, wide wheels and flared wheel arches.
  • Choose the right options when you buy – for example, metallic paint and leather are best on executive cars, while built-in sat nav and air con are desirable on mainstream cars.
  • Stick to popular colours – an outrageous shade may appeal to you, but will put off many buyers when you want to sell your car.
  • Reduce depreciation percentages by buying your car for less in the first place – resulting in a smaller percentage of less when you come to sell on.
  • Buy in-demand cars with low running costs – such as city cars and superminis.

Top 10 Cars that hold their value

In April 2015, the car valuation service Glass published a study of how well cars held their value. Here are Glass’s top ten cars for holding value, plus their average annual rate of depreciation:

  • Land Rover 20.3%
  • Tesla 28.5%
  • Maserati 29.8%
  • Audi 31.1%
  • MINI 31.3%
  • Jeep 31.7%
  • Lexus 33.0%
  • Dacia 33.6%
  • Mitsubishi 34.0%
  • Mazda 34.2%

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