Car depreciation – what is it?

When buying a car, you’ll hear about car depreciation often. Car depreciation is the decrease of a car’s value over time. Buying a car which depreciates quickly means it won’t be worth as much when you come to sell the car. There are some car makes and models which are well known for holding their value and some which are famous for depreciating quickly.

Read our guide below on all things car depreciation and how it works. 

What is car depreciation? 

Car depreciation is the difference between how much you paid for your car when you bought it and how much you get when you sell it. Most cars can depreciate up to 50% in the first year of ownership. Buying a brand-new car means you’ll take the brunt of the depreciation. After the three-year mark, the car depreciation rate will start to slow down. By the time a car reaches about 8 years old, the depreciation usually comes to a standstill. Knowing how car depreciation works can help you make better choices when car buying and could help you save money in the long run. 

What factors affect car depreciation? 

There are some cars which will depreciate quickly, due to their make and model. However, there are also external factors which can also affect the rate at which a car depreciates. 

• Mileage – A car with more miles than average will depreciate quickly. On average, cars should cover 10,000 miles every year. Higher mileage cars can be worth less as they’ve been used more and will naturally have more wear and tear.

• Service history – As a car owner, you must keep up to date with regular MOT and servicing needs. A car with a full servicing record will be worth more than a car without. 

• Number of owners – Generally, a car with fewer owners will be worth more than a car that has been around the block a good few times. A lower number of owners can suggest better maintenance of the vehicle. To see how many owners a car has, you can check the V5C registration document or logbook. 

• Market demand – A car which is high in demand by car buyers can retain its value better. Popular cars that have recently had a facelift also hold their value better as they are more desirable. Similarly, a less popular car may depreciate quicker. 

How much do cars depreciate per year? 

How does car depreciation affect car finance? 

Car depreciation can affect your car finance agreement. Deals which are based on the future value of your car, such as PCP, can be affected by how quickly a car depreciation. PCP deals require you to cover the depreciation costs in your monthly payments, and at the end of the deal, there is a large balloon payment to pay if you want to own the car. If you don’t want to own the car and choose to hand the car back, you can do so with little hassle.

Hire Purchase deals require you to cover the full cost of the vehicle and any interest or fees over the term. This means the car could depreciate quicker than you pay the loan and if the car is worth less than what you owe at the end of the deal, you’ll be in negative equity. 

How can you slow the rate of depreciation? 

As we’ve mentioned, some cars are better at retaining their value than others, but there are things you can do as a car owner to help slow the rate of your car depreciation. 

• Keep mileage as low as possible. 
• Use manufacturer-recommended parts and tyres. 
• Keep up to date with service and MOT needs. 
• Keep your car clean and well-maintained. 
• Limit the number of modifications. 
• Avoid smoking or having pets in the car. 

Related Content: 

Is GAP insurance worth it? 

GAP insurance covers the ‘gap’ between the car’s value and the finance amount owed, should your vehicle be written off.