Car depreciation is the process of your car losing value as it gets older. It's the reason why your car is worth less when you sell than when you bought it.
Almost every car is affected by depreciation and will constantly lose value the longer it remains in service. Different cars depreciate at different rates, so choosing the right model can reduce the amount of money you lose in depreciation – more on that later. Generally, cars lose most of their initial value in the first three years, which makes a nearly new car great value as it's typically much less expensive than a brand-new equivalent.
What is a car depreciation rate?
Car depreciation can sometimes be described as 'fast' or 'slow', which refers to the rate at which a particular vehicle loses value. Models with 'fast' depreciation lose value more quickly than the average car, while cars with slow depreciation will hold on to more of that value for longer than average.
Note that, while depreciation is often described as a rate that's either fast or slow, figures in this area are given as a percentage of the vehicle's value remaining. For example, a car might be estimated to be worth 65% of its brand-new price after three years of ownership – in this case, that would be a fairly slow rate of depreciation compared to the average car.
How to work out car depreciation
There are several ways to calculate car depreciation. Most vehicle sales companies like dealerships and car supermarkets will subscribe to a data provider such as Cap HPI. This will provide them with detailed estimates for vehicle values over time and, thus, how much a car will depreciate.
If you're a private buyer, however, that's not a very viable option. In this case, it can be very useful to look at a representative finance arrangement for a particular vehicle. You can compare the vehicle's list price at the point of purchase with its guaranteed future value (GFV or GMFV) – subtracting the GFV from the list price will give you the amount of money the seller expects the vehicle to lose over the length of the finance agreement.
How much does a car depreciate per year?
This is similar to asking 'how long is a piece of string?'. The answer depends on the model of car and the brand that builds it. It's also affected by how old the car is to begin with – depreciation is usually faster in a car's early years before slowing down as it gets older. Of course, you'll also need to factor in the number of miles you've covered in it, as this also impacts your car's specific rate of depreciation.
As a very rough guide, here are some ballpark figures for how much depreciation you might see in an average car's lifetime:
- One-year-old car: ~75% of its original price
- Three-year-old car: ~50% of its original price
- A five-year-old car: ~35% of its original price
- A 10-year-old car: ~20% of its original price
The particular car you're looking at could vary substantially from these figures, however, so make sure to get an accurate picture of its value before committing to a sale or purchase. Why not get a quick, competitive valuation using Motorpoint's Vehicle Valuation tool?
How important is car depreciation when buying or selling a car?
If you're buying a nearly new or used car – like the ones we sell at Motorpoint – depreciation is something of a double-edged sword. On the one hand, a used car with fast depreciation will be worth less when you come to sell it than an equivalently priced car with slow depreciation.
However, on the other hand, a model that depreciates quickly may drop into your budget range sooner than a similarly priced car that holds its value better. In other words, take two £40,000 brand new cars – one with fast depreciation and one with slow depreciation – and it'll be the fast-depreciating model that'll become available to you sooner as a used buyer with a £20,000 budget, for example.
Another factor that will determine how important depreciation is to you when buying a car is your personal preferences. Yes – you might be able to save some money in the long run by choosing one model over another, but you may simply prefer the other car, even if it does depreciate faster. In which case, you might want to just live with the extra depreciation to end up with a car you actually like.
What impacts a car’s rate of depreciation?
The most important factor impacting how fast your car depreciates is the make and model you choose. Broadly speaking, the car-buying market 'prefers' premium brands, ideally ones with a long history of building desirable vehicles. It's no surprise that used values for Audi, BMW and Mercedes cars tend to be more robust than similarly priced cars from more mainstream manufacturers.
By the same measure, the market prefers some car models over others. It would be an oversimplification to say the determining factor here is a model's body style but today's market is still showing a clear preference for SUVs and 4x4s, in comparison to traditional family car styles like saloons and estates.
Beyond the make and model, there are variables that'll affect your car's depreciation. The two most important to consider are age and mileage. Depreciation is usually fastest when a car is new and slows down as it gets older. Plus, a car that covers lots of miles every year will be worth less over time than the same model with a lower average mileage.
How depreciation affects car finance payments
Depreciation is an important factor in working out personal contract purchase (PCP) finance payments. This is because depreciation determines your PCP car's guaranteed future value (GFV), which is set at the start of your finance agreement.
Your PCP payments essentially cover the gap between the car's purchase price and its GFV over the course of the finance agreement. As a result, a car with slower depreciation and a higher GFV may be more affordable on PCP than a similarly priced car with faster depreciation and a lower GFV.
• What happens at the end of your PCP finance agreement?
New vs used car depreciation
As a general rule, cars depreciate the fastest when they're new, losing the largest chunk of their value in the first year of ownership. That means the brand-new buyer is usually taking the biggest hit in terms of depreciation when they come to sell the car.
That broadly means that used cars depreciate at a slower rate than they did when they were brand new. So used buyers will usually lose less of the car's value over time than the brand new buyer if all else remains equal.
Cars that depreciate the least
Common features of cars that depreciate the least:
- Premium brands – Audi, BMW and Mercedes
- SUVs and practical body styles
- Rare or exclusive models
- Resale-friendly colour such as black, grey or white
- High-performance cars
Cars that depreciate the most
Common features of cars that depreciate the most:
- New and obscure brands
- Uncommon or undesirable body styles
- Bright, opinion-splitting colours – especially on larger cars
How to avoid car depreciation
The biggest impact you can have on your car's depreciation is choosing to buy a make and model that holds its value well. That often means choosing a popular or desirable model, ideally in a colour and specification that's popular within that market, and avoiding more obscure models or unusually specced variants.
With your make and model decided, you can make sure your car holds on to as much value as possible by maintaining it properly. That means keeping up with all scheduled servicing and fixing any problems as soon as they arise, as well as being careful to keep the bodywork and interior as clean as possible. Finally, remember that the more miles you cover, the less your car will be worth, so try to rein in your excess mileage if resale values are front of mind.
Are there any cars that don't depreciate?
Cars are often described as a depreciating asset and that's true for almost every single model on sale. There are a very small number of exceptions, however – cars that will increase in value from the moment they're built.
Invariably, these are ultra-rare supercars. We're not talking your common or garden Ferrari or Lamborghini – this only applies to the exclusive, multi-million-pound models that are usually only built in single or low-double-digit figures. While these cars are often some of the fastest, most exciting vehicles ever built, they're usually purchased as investment pieces, sat in secure underground garages, well out of reach for mere mortals like us.
Find a great car that holds its value
Motorpoint has thousands of nearly new and used cars for sale. Every one has already depreciated below its brand-new price, making it more affordable for you compared to the first owner.
