What is depreciation? Learn how a car loses its value

It is a common fact that cars lose some of their value over time and when it comes to selling your car it helps to know exactly what depreciation is and how you can minimise the effects.

Put simply, depreciation is the difference between the amount you buy a car for and the amount you then sell it for or part exchange it for. Most cars will see their largest fall in value during the first year they are owned which is good news if you are looking to buy a car which has a few miles on the clock already. Depreciation starts to slow down after a car becomes a year old and further when it reaches 3 years old.

Car depreciation is often overlooked in the excitement of buying a new car but it should definitely be considered. By having choosing a car that depreciates more slowly may cost slightly more but it will save you money when it comes to selling.

So what factors have an impact on depreciation?

  • MPG - Cars with a lower MPG require fuel more often which makes them appealing to a lower number of people when it comes to sell.
  • Mileage - The more miles you do in your car the more it will depreciate as it is less appealing to the next buyer. Some cars show the effects of higher mileage more than others and it is these which will tend to lose their value the fastest.
  • Condition - Looking after your car and ensuring it is kept in good working order is the easiest way to ensure that it holds its value. By keeping your car free of damage and repaired to suitable standards you will retain its market value.
  • Servicing and MOT - Your car will retain more value if you keep up to date with manufacturer servicing and MOT and keep all of your certificates together for the next owner.
  • Owners - The number of owners a car has had will also have an effect on the amount your car depreciates. Simply put the fewer the owners the better when it comes to a car holding its value.
  • Warranty - Many manufacturers now provide a long warranty with their cars, some even up to 7 years. If you sell your car within this period it will likely be worth more.

Top tips to minimise depreciation: 

  • Try to avoid adding unnecessary mileage to your car, the lower the mileage the more your value your car will retain
  • Look after your car and ensure any repairs are undertaken as soon as possible and to a suitable standard
  • Buying a used car will ensure you avoid the steepest depreciation
  • Avoid modifying your car in a way that could make it less appealing to buyers in the future
  • Stick to popular colours – if you go for something abstract it may not appeal to others when you come to sell it
  • Keep up with manufacturer maintenance standards and retain all certificates and receipts
  • A full-service history gives the new buyer confidence in the car's value

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