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Car Depreciation: What it is and how to avoid it

Posted on 19/01/2018

It’s a fact of life that cars will depreciate after you purchase them. 75% of cars are now bought on finance and with many of those deals running for three years, it’s inevitable that you will have to sell or trade your car in. This leaves many people facing depreciation and potential negative equity on car finance agreements. There are some ways that you can reduce your loss so read on for some tips on how to mitigate depreciation.

What is car depreciation?

Depreciation is the difference between the amount you buy your car for and the amount that you get back when you sell it or trade it in for a new car. It depends on a few factors such as the price, the running costs and the quality of the car.

Most cars lose 50-60% of their value in the first three years of ownership, with most cars taking the biggest hit in their first year of ownership.

How can I avoid depreciation?

The biggest factor that will affect depreciation is the model of your car. Some cars are notorious for losing their value much quicker than others, so it’s important to do your research before you purchase a car.

What sort of condition your car is in is another big factor in determining the residual value of your car. Look after your car to ensure it’s in the best possible condition when you need to sell it or trade it in and you’ll get more money for your car.

Mileage will also affect the value of your car – if you’ve racked up a lot of miles then your car will be less desirable to a buyer.

Finally, fuel economy is now also a factor in determining how much your car could sell for. Decent fuel economy is one of the biggest costs that people consider when choosing a new car whilst depreciation is often overlooked. However according to research from CAP Automotive, depreciation will cost the average motorist three times as much as they spend at the petrol pump. This means it’s really important to do your research before you purchase a new car!

Buying a new or used car is the safest way to avoid the largest depreciation, with new cars losing as much as 40% of their value in the first year.

Top 5 Fastest Depreciating Cars of 2017

Renault Zoe I-Dynamic Nav Quick Charge in Grey

Renault Zoe i-Dynamic Nav Quick Charge

List price: £29,020
Depreciation after 1st year: £22,520 (77.6%)
Depreciation after 2nd year: £23,545 (81.1%)
Depreciation after 3rd year: £24,370 (84.0%)

Image Credit: Auto Express

Nissan Leaf Visia

Nissan Leaf Visia

List price: £26,180
Depreciation after 1st year: £18,880 (72.1%)
Depreciation after 2nd year: £19,955 (76.2%)
Depreciation after 3rd year: £21,105 (80.6%)

Image Credit: Auto Express

Red Alfa Romeo Mito

Alfa Romeo Mito 1.3 JTDM-2

List price: £16,080
Depreciation after 1st year: £11,555 (71.9%)
Depreciation after 2nd year: £12,180 (75.7%)
Depreciation after 3rd year: £12,755 (79.3%)

Image Credit: The Telegraph

Red Vauxhall Astra GTC

Vauxhall Astra GTC 1.6 CDTi 16V ecoTec Sri

List price: £24,465
Depreciation after 1st year: £16,390 (67.0%)
Depreciation after 2nd year: £17,590 (71.9%)
Depreciation after 3rd year: £18,765 (76.7%)

Image Credit: Top Gear

Fiat Punto 1.4 Pop+

List price: £12,275
Value loss after year 1: £8,150 (66.4%)
Value loss after year 2: £8,825 (71.9%)
Value loss after year 3: £9,425 (76.8%)

Image Credit: Bristol Street Motors

 

Data from What Car?

Registered with Information Commissioners Office ICO Registration Number: ZA132327

UK Car Finance Limited. Registered in England
Registered number 9397657.
Registered Office Lakeside House, 30 Northumbrian Way, Newcastle Upon Tyne, NE12 6EH

Refused Car Finance is a trading style of UK Car Finance Limited and is acting as a licensed credit broker and a lender, we are authorised and regulated by the Financial Conduct Authority, registration number 714966. All finance is subject to status and income. Applicants must be 18 or over, terms and conditions apply, guarantees and indemnities may be required.

Written quotations on request. Certain exclusions for NI residents.

Note: We cannot be held responsible for specification errors, and price errors, we use Motortrade software which is not always 100% accurate. Copyright 2017 Refused Car Finance.

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*Representative Example
Cash price – £8,500.00, Deposit – £0.00, Amount of credit – £8,500.00, Rate of interest – 16.24% per annum, Amount of interest – £6,912.00, Lender Documentation fee – £0.00, Lenders option to purchase fee – £10.00, Total charge for credit – £6922.00, First repayment – £256.70, Followed by 58 Monthly repayments of – £256.70, Final repayment – £266.70, Total amount payable – £15,412.00, Representative APR – 29.9%

*Last month, over 51% of Refused Car Finance customers that had their loan arranged were offered an APR of 29.9% or lower

In the first 3 months of this year, UK Car Finance Ltd received 2140 unique applications, of which we were able to offer 2136 applicants a line of credit, subject to the applicant being able to provide acceptable proof of affordability, being free from insolvency and or/a supporting guarantor fitting the lenders eligibility criteria, this represented 99.8% of applicants in this period.

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