What is Car Depreciation and How Does it Work?
If you’re buying or selling a car anytime soon, you’ll need to be aware of car depreciation. As with most items, when it comes time to resell your car, you can expect to notice a difference between the price you initially paid and the price you receive at resale.
Brushing up on your car depreciation knowledge will help you get a good idea of how much your car may have devalued by, giving you a rough estimate on how much to expect.
Car depreciation is basically the difference in price between the amount you paid for the car when you bought it, and the price you can expect to receive when you sell it. The actual decrease in market value tends to vary between makes and models. However, as a general rule cars tend to decrease in value between 15%-35% in the first year, and up to 50% over a three-year period.
Unfortunately for any driver, the value of a car does depreciate quickly - some models more than others. So what is it that causes depreciation?
What Actually Affects a Car’s Value?
Yes, there are loads of different factors that affect the resale value of a car. But, a few crop up time and time again, so if you get these under control, you’ll have better chance of saving cash value on your car.
If your car is in good nick, then age ain’t nothin’ but a number, baby. Ok, so age does still have an effect, but any interior or exterior damage is much more, well, damaging, to the car’s value. Keeping a car in good condition will better your chances of bagging a good price at resale.
Again, a car’s age won’t have as much of an effect as its mileage. The more miles it’s clocked up over the years, the less it’ll be worth. Want to work it out for a particular set of wheels? Consider that the average car travels around 10,000-14,000 miles a year. Divide your car’s mileage by its age, and if it’s less than this figure, your car’s value will be above average.
Number of Previous Owners
Similar to mileage and condition, number of previous owners is an age-related issue – the more a car has changed hands, the more the value of your car is likely to depreciate. Be sure to check the number of owners your car has had in your logbook or V5C registration and always be honest when reselling.
Size and Type
The size and type of your car will also affect how quickly it depreciates in value. As a general rule, larger, luxury vehicles tend to drop in value more quickly than smaller vehicles. This is because they often cost more to run, maintenance is complex and bills for repair are higher.
Reputation for Reliability
Something else that’s out of your hands is your car’s reputation. Some models are renowned for being more reliable than others – Hondas always get high praise – and people’s judgment will always affect resale value.
However, you can combat any buyer’s bad impressions of a brand by having proof of the car’s service history. Having a full service history is a great way to reassure the buyer of the car’s condition, so the more complete your service history is, the better. Got a tyre-kicker that’s tutting over a Toyota’s reliability? A detailed bill of service history could save the day.
Gas-guzzlers cost a lot more money to tax each year, as in a sense drivers are penalised for a car’s carbon emissions. Cars that cost more to tax can be less desirable during resale, directly having an effect on car depreciation.
Conversely, fuel economy plays an increasingly important role in the value of a car, as a higher number of miles per gallon ultimately makes a car more affordable to run. If your car is very efficient, this will make it much more desirable and help stop depreciation.
How to Stop Car Depreciation and Save Cash!
Ok, so unfortunately you can’t stop car depreciation (until you get into pristine-condition-classic-car territory, that is!) but the good news is, you can slow it down considerably. Here are a few helpful tips to keep in mind, if you’re planning on reselling your car anytime soon.
Keep That Mileage Down
If you’re considering selling your car, and you can avoid driving without too much inconvenience, then do. Keeping your mileage down will preserve some of your car’s value, especially if it shows that you have driven less than the yearly average number of miles.
Keep Your Car Looking Good Too!
Help stop (or at least stave) depreciation by repairing any superficial damage to your car. Dents, scratches and scuffs will stop you from getting the best possible price for your car, as when buying used, appearances do count!
Give buyers confidence in the condition of your vehicle by maintaining a full service history. Proof of its past will prove to be well worth it, as it’ll be reflected in the price you can hope for at the point of resale.
Lose the Mods!
Did you know that modifications, although maybe cool at the time, can have a drastic effect on car depreciation? Not only can they decrease market value, it can be harder to obtain insurance and it’ll also dramatically reduce the number of interested buyers. What might look good to one, may not to another, so leave the large spoilers and tinted windows to the teenagers.
Try to Sell at the Right Time
When it comes to selling your car, timing is everything. Try to sell just before the latest model appears in showrooms - this will mean that your model is still the newest in the range, making it more desirable and often, more valuable. Remember that vehicles such as sports cars and convertibles are generally more desirable during the run-up to summer, while 4x4s are more appealing on the approach to winter – time it right and you’ll get a top resale value, whatever your model.
Hopefully now you’re a little more clued up about car depreciation, why vehicles depreciate in value and the steps you can take to retain some of your car’s value. If you are looking to sell your car, give our friendly team a call on 0161 638 3632 today! Or, if you'd like to learn even more about depreciation, check out this commentary by Matt Kay, cartime's director.