Business, Personal

Why do cars depreciate in value?

Posted on May 19, 2017

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Vehicle depreciation and what you can do combat it...

We've all heard that cars depreciate in value as soon as they are driven off the forecourt, but what does that actually mean? Well, the depreciation of a vehicle is quite simply the difference between the value of the car when you first buy it and the value of the car when you decide to sell it. All cars depreciate over time and on average a car will lose 40% of its value in year one.

By the end of year three, most cars will have lost 60% of their value. But what causes this depreciation?

We have highlighted some of the main reasons below.

Dealership costs

One of the main reasons a car depreciates as soon as it leave the forecourt is because the buyer has paid extra costs to the dealership above the value of the car. The dealership obviously needs to make a profit on the car, but they also need to pay their staff and other overheads, therefore an additional cost is added to the car. Once you have purchased the car, these costs are no longer relevant to its value so it decreases instantly.

Age of the car

As your car gets older, the value decreases, just as it does with anything you buy. The best way to avoid depreciation by age is to buy an older car. A 5 year old car will depreciate much slower than new one and most cars will have finished depreciating by the time they are 8 years old.

Usage of the car

The higher the mileage of your car, the faster the depreciation. If you drive your car for over 10,000 miles a year, it is likely to depreciate more rapidly than a car which gets less use.

Condition of the car

If your car has scratches, dents or damage when you go to sell it, it will be worth less than an undamaged car. Also, if you have internal damage this will lessen the value, so try to drive sensibly! Getting your car serviced regularly will help to maintain the value of the car.

High fuel efficiency

There is a higher interest in cars which have a better fuel efficiency, therefore a car that uses a lot of fuel is less desirable and will therefore depreciate quicker.

Model updates

Cars are constantly being upgraded with innovative new designs and technologies to make the driving experience a better one. If your car model has been out for a while and a new model is going to be released soon, you can be sure that your car will depreciate faster.

So what can you do?

There are plenty of ways to slow down the depreciation of your car. Keeping your vehicle in a good, clean condition, keeping mileage at a minimum, getting servicing done when appropriate and keeping your service record as well as swiftly attending to any repairs necessary will all help to slow down the depreciation process.

If you're wondering what your cars level of depreciation is, you can find a car depreciation calculator here.

If you want to avoid depreciation costs altogether, contact one of our team members today about leasing a car.