How much does a car depreciate each year?

The sad fact is that cars tend not to make good financial investments. With the exception of rare, high-demand exotica, most new vehicles haemorrhage money the minute they are driven. Virtually all of them continue to shed value every year, until they are not worth repairing and the scrapyard beckons. By this time, the once-sparkling pride-and-joy suffers the ignominy of its value being determined mainly by its weight and scrap-metal prices.

What is depreciation?

The depreciation rate of a car in the UK is the percentage by which its value declines from its new price.

While depreciation may be of little interest to a private car owner, who plans to keep it indefinitely, it matters more to business owners, who may wish to factor depreciation into their financial accounts.

Depreciation is also a vital consideration for businesses that buy vehicles in bulk, who wish to claw back as much money as possible come de-fleeting time.

It is somewhat ironic that many people do not even consider depreciation, since it is often the biggest motoring expense. A main reason for this is that the cost remains hidden. This is because, in most cases, the car’s value is realised only when it is sold.

Does car depreciation matter?

Most private people buy new, or nearly-new, cars on finance. Depreciation tends to be included within the monthly payments, especially with PCP and Personal Contract Hire agreements. Therefore, payments tend to be more on cars with higher depreciation and vice versa.

Yet, if the car depreciates more than envisaged originally, you could find yourself in negative equity, when the term ends. Therefore, it can be a good idea to seek finance deals that guarantee the car’s value at the end of the term. This means that the finance company will take the fiscal hit, not you. When investigating such contacts, conduct thorough research and obtain independent financial advice.

Yet, you will be liable for other issues that have reduced the car’s value. This explains why many finance policies include strict terms on mileage, maintenance and body/paint damage. Breaches involve extra charges, when the contract ends and you decide to hand the car back.

Regardless of how the car is financed, you may owe more than the car is worth, if the car is written-off. This is because insurance companies value the car on what it views its trade market value to be just prior to the incident (which you are within your rights to challenge), not the debt secured against it.

If you do not want to take the risk, consider policies that will give you peace of mind. For modern cars, ‘Gap Insurance’ is worth investigating, while ‘Agreed Value’ polices are popular with owners of cherished performance, classic, or historic vehicles.

How much do cars depreciate per year?

The average depreciation of a car depends on factors the car owner can control and those that they cannot.

External factors depend on the market demand for a particular make, model and specification. Ultimately, car depreciation averages depend on desirability. More desirable cars are worth more; undesirable cars are worth less. This might sound simple in practice but establishing depreciation on a car is not easy.

UK-market cars are assessed when new for depreciation by established companies such as CAP HPI and Glass’s Guide. These firms assess market sales data continually and use them in their forecasts. If you are interested to find out the depreciation rate on a car, or even how much your car is worth, numerous firms will provide (and charge) you for this information but they base their data on the findings of a handful of experts.

Other external factors include the state of the economy, taxation policy, fuel prices and how a particular vehicle’s repute evolves. Sadly, there is not much that a private individual can do to influence these issues.

What a car owner can control is the mileage covered, the service history, plus the condition of the paint and bodywork. The best prices for used cars are obtained by those that have been looked after, with impeccable service histories.

When purchasing the car originally, you can also take steps to minimise depreciation. Yet, conduct your research carefully. Factors including colour, transmission, fuel type, wheel sizes and option extras all influence how much your car will be worth in the future. Of course, negotiating a good deal will also help to numb some of depreciation’s sting.

How do I work out my car’s depreciation?

Unfortunately, the car depreciation average is not the same sum every year. Cars depreciate the most during the early years of their life, with the rate starting to plateau once three years have passed. Typically, the car depreciation average is 60% of its original value after three years.

You can consult UK car depreciation tables that may help you. These require you to enter your car’s details, its mileage and how long you have owned it. A typical example is here: https://www.themoneycalculator.com/vehicle-finance/calculators/car-depreciation-by-make-and-model/

While UK depreciation tables are useful guides, most car owners want a more accurate car valuation that takes into account other factors, such as specification, optional extras and condition. Some firms that promise to purchase any vehicle will give a quick, often free, estimate. Yet, expect it to decrease once the car is inspected, before a deal is struck.

Another way is to research cars for sale. Look for traders, private sales and even social media and online marketplaces for similar cars to yours, with similar miles and specifications. This information is vital evidence if you think that the insurance pre-incident write-off value is too low.

Overall, depreciation is like death and taxes: it cannot be avoided with a modern, mass-produced car. However, by following our tips, minimising your exposure to depreciation can help not just your wallet but also your car’s safety.

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