Don’t you just hate that moment when you have made a decision to buy a new car, and someone throws a ‘spanner in the works’ by mentioning something like depreciation, or depreciating assets.
Suddenly your excited, happy feeling turns to darkness and worry about the unknown…
Ok enough with the dramatics. Depreciation is something that we have all encountered. Most things that you purchase from new will depreciate.
Think about that brand new dress, shoes, PS4, or television that you have just purchased, as soon as you have become the owner of that asset they will start to reduce in value.
Depreciation is happening all around you. These assets or products are reducing in value the more use or wear that they receive. Most of the time people are not worried as they have made a calculated decision to purchase the product anyway, because the value you will get from using these things is higher than the amount you will lose in value.
Cars are no different…
When you purchase a car it will reduce in value. Generally there are three main points that determine the level of depreciation. These are:
1. The number of miles you drive
2. The age of the vehicle
3. The desirability of the car.
Did you know that you can actually help to reduce the speed of depreciation by considering the points above? Let’s provide you with a few examples:
Number of miles you drive:
For this example we are looking at a MK6 Volkswagen Golf (2.0 TDi GT 61 plate), the average mileage for this vehicle should be about 33,000 mile. The retail price for this vehicle is £22,205 and the used price now is roughly £14,000.
However, if you had this car from new and had actually driven 20,000 miles per year, then the car would be above average mileage and would now be worth £12,610.
If you had only driven 7,000 mile over the three years the car would retail for £14,790.
|Miles||Used Retail Value||Depreciation|
Age of the vehicle: This is the easiest example of depreciation. As cars get older they will depreciate (unless you are lucky enough to own a classic or rare car that is appreciating), quite simply every year that passes the vehicle will reduce in value. We will again use our example of a Volkswagen Golf (2.0 TDi GT), the table will show the value of the vehicle over a 5 year period and the level of depreciation.
|Miles||Used Retail Value||Depreciation||Year on Year Depreciation|
You will notice that the speed of depreciation generally reduces as the car gets older. It is no secret that brand new cars depreciate quite quickly in the first 18 months, therefore it can often be better to buy deal on a nearly new, or used vehicle when that initial steep level of depreciation has already passed. Desirability of the vehicle: This point is an important one, not all cars will hold their value equally and some models will depreciate much faster than others. In the following example we are going to look at a Mini and a Citroen DS3.
|DS3 VTi 1.6 D Style - RRP £14,675||#colspan#||#colspan#||#colspan#||#colspan#||Mini Cooper D 1.6 - RRP £16,125||#colspan#||#colspan#||#colspan#||#colspan#|
|Reg.||Price||Mileage||Depreciation||Depreciation %||Reg.||Price||Mileage||Depreciation||Depreciation %|
As you can see from the table above the Citroen DS depreciates at a much faster speed than the Mini. So purchasing the Mini will actually mean that the money you have invested in that asset is reducing slower. All cars will depreciate at different speeds so it is important that you do your research and understand just how well your next car will hold its value. Still need more help with depreciation? You can find our more on our ‘Depreciation Explained’ terms page.