What is car depreciation?
Depreciation is the difference between a car’s value when you buy it and when you come to sell it.
This drop in value varies between makes and models but typically is between 15-35% in the first year and up to 50% or more over three years.
What factors will affect car depreciation?
Many factors influence the rate of depreciation for any given car. Here are some factors to take note of, especially if you plan on selling the car,
- Make of the car – Reputable car brands with notable track records will hold value better over time.
- Model of the car – Popular models will generally have a lower rate of depreciation.
- Age of the car – New cars generally lose value faster than older cars.
- Warranty period – If you sell a car that is still within its warranty period, the resale value will be higher.
- Accident history – Cars that have been in accidents will have considerably lower resale values.
Why is depreciation important to consider?
- Depreciation will cost you money over time,
- Depreciation affects the resale value of a car.
*Tip: Reliable and well-established car brands will generally have a lower rate of depreciation (Think Toyota and Volkswagen).
How does car depreciation affect you?
If you buy a new car, the moment you drive it, it will be worth a lot less than what you just paid for it. Here are some facts,
- Depreciation is the largest expense you will incur over a five-year car ownership period,
- Most cars depreciate at a rate of 15% – 20% per year,
- The rate of depreciation is most severe in the first year of ownership and can be as high as 50% in some cases,
- The rate of depreciation decreases as the car gets older,
- Your car will generally be worth half of what you paid for it after owning it for 5 years.
*Tip: To avoid the brunt of depreciation, consider buying a used car with low mileage.
Tips for minimising depreciation
- Keep the mileage down.
- Look after your car and repair any damage as soon as possible.
- Buy a nearly-new or used car to avoid the steepest depreciation.
- Avoid unnecessary modifications such as spoilers, wide wheels and flared wheel arches.
- Sell at the right time of year – for example, convertibles in the summer and 4x4s in the winter.
- Stick to popular colours – an outrageous shade might appeal to you, but will put off many buyers when you want to sell your car.
- Consider leasing rather than owning – then there’s no worry about the car’s depreciation, which will be built into your monthly payments.
- Do your research before buying a car – see how much value have gone down on older models and similar vehicles from the same manufacturer.
- 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.
- 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.
- Sell your car well before its replacement model arrives in the showrooms.