DEPRECIATION

Depreciation; The Hidden Cost

What is depreciation and what does it really mean to you?

Depreciation is the term used to describe the decrease in monetary value of your car over a period of time.

Depreciation is the largest hidden cost to you and your vehicle. Whilst you may enter into what seems like a good deal at the time, you must consider what the value the car will be when you chose to sell it on. This is called the residual value of a car.

The moment you drive your car off the forecourt of your dealer, depreciation has started. More frustratingly to the consumer, you pay to keep you car road worthy and you pay for tax, fuel costs etc but all the while your car depreciates; So what’s the best thing to do? Know how to manage the depreciation!

How is depreciation worked out?

New Cars;

Year 1 – By the end of the first year the average car has lost about 40% of its initial value. However, this is a very rough figure, as different car makes will depreciate different amounts over time.

Year 3 – Depreciation is worked out on a 10,000miles a year user average. Therefore, on this basis, a car on average would have lost about 60% of its initial value after 3 years.

Due to the difference in depreciation levels between different manufacturers, you should check out our car review pages and pick a specific model and see how much it would cost you.

Used Cars;

Nearly new – Depreciation takes a steep drop to start with and slowly levels out. Therefore a car that is only 1 or 2 years old could actually hold a better residual for you than if you purchased the car brand new.

5 Year old car – A 5yr old car may be an even better option for some consumers. The car will lose a lot less money in depreciation each year and if the mileage is low enough (equating to 10,000 miles a year). Therefore the consumer will pay a smaller amount for an old car but will sell it at a more similar price and experience less depreciation over time compared with a new car.

A rough guide to depreciation on different types of cars

Superminis: They may look cheap, but choosing the wrong supermini could cost you more than £6,000 in depreciation in just three years. However, larger superminis tend to be more competent all-round cars, commanding higher list prices. This means there’s generally a healthy demand for them second-hand, keeping used prices strong.

Medium cars: When depreciation is taken into account, budget, medium-sized cars can work out costlier than their premium-badge rivals. By negotiating a generous discount on models that hold their value well, like BMW’s 1 Series, you can minimise the true cost of depreciation.

Large cars: The discounts offered on some mainstream family cars can make a huge difference to their overall running costs. In fact, a serious discount is often necessary to avoid crippling depreciation.

MPVs: Space and versatility needn’t cost the earth. You can haggle several thousand pounds off the price of some MPVs, making them cheaper to run than much smaller cars.

Depreciation Advice

Tip 1; RESEARCH. Research the car you like, read reviews. The cars with good reviews in the press and on car websites are likely to hold their value more so than less popular cars.

Tip 2; AGE. Sometimes you would be better off buying a car that is 1 or 2 years older than a new one. This is because the largest depreciation of a car is when it is first bought.

Tip 3; TOPICAL ISSUES. The current social and political climate could affect the price of your car when it comes to selling. For example, the ‘green’ factor with some cars today could lead to lesser demand for the gas-guzzlers of today in a few years time.

Tip 4; SERVICE HISTORY. A full service history could add hundreds to your car value at point of sale. So make sure you have it.

Ten tips to protect the value to your car

Top ten cars with better residual value

2008 Car Depreciation News

Vehicles in the UK are depreciating at a faster rate than before this year.

Analysts told the BBC that used car values will decrease by 8% this year. Big family cars and four wheel drive vehicles are the worse effected. However, smaller fuel-efficient vehicles are holding their residual value better.

Warning signs show the credit crunch taking hold of the UK car market. But for consumers, the time to buy may be now whilst prices are dropping.