What You should know about car depreciation

  • Author: OPONEO.CO.UK

Most people know that just driving a new car off a garage forecourt for the first time will wipe a significant amount off its value. Depreciation is hard-hitting and likely to make a big difference to what your car is worth against its new value.

However, it doesn’t end after the first year, and the fact is that new cars continue to lose value for up to four more years from new, experiencing a decline of as much as 15 to 25 per cent, per year.

This means that, on average, a new car will lose up to 60 per cent of its total value over the first five years of its life!  That is a serious amount of lose when you may be paying tens of thousands of pounds for a car!

While some depreciation is dependent upon car type, with certain cars suffering more than others, a far more pressing effect comes from not maintaining a vehicle properly. If you don’t keep your vehicle in good order and fail to have it serviced at appropriate intervals, these illusory savings will backfire later on severely affecting the worth of the car at sale.

calculator

Initial depreciation

As already stated, just driving a new car away will make it depreciate, but why is that?  There are two main elements to this, one you can control and one which you cannot. These elements are

1.Dealership mark-up

Obviously, car dealers are out to make a profit, and since car specifications vary so wildly, with all the little extras that you can have, it’s difficult to pin down a real price for a particular car. Therefore, dealers feel obliged to stick a bit more on top just to increase their profits, which is why it’s always best to shop around. This Manufacturers Suggested Retail Price (MSRP) is negotiable and should be negotiated – car buying is more of a buyers’ market than a dealers’ market.

2.Upside-down loan

If you have a finance package arranged by the garage that you are buying from, once you actually take the keys, you may owe more than the car is worth. Known as an upside-down loan, car finance is effectively negative equity as the cost of the loan – the amount of interest that you pay on top of the amount of the car - is more than the value of your new vehicle.
 
You can negate the effects of this by seeking some other form of finance – such as a bank loan – or being in a position to not need finance anyway by having sufficient savings to buy with. If you have a bank loan, you will find that you will have much more competitive interest rates compared with car finance and, by effectively having cash money – or a bank transfer anyway – you can negotiate another amount off the cost of the car.

new-cars

New is the new old pretty soon

Another factor to consider is that car manufacturers bring out new and updated models frequently, making your brand-new car an old model within a few months. Dealers are well aware of what is coming up and will push soon-to-be-outdated cars just to get rid of them from the forecourt, but usually not with an appropriate discount.

As a result, owners find themselves stuck with last year’s car in this year’s world, thereby effectively losing a pile of money in the process as no one wants to buy a second-hand car that is only just the previous model.

Further depreciation

Once you have lost the initial amount on your new pride and joy, it will continue to haemorrhage value, with the amount determined by how you treat your car and what happens to it. First off, where are you going to park it?

If it is in a garage then you will be able to protect it a lot more than if you have to park on the street, where it is exposed to the elements as well as the poor skills of other drivers who might collide with or scrape against your vehicle. It is well known that even a smallish scratch to a body panel can become a major – and costly – piece of work to repair.

scratch-on-bumper

Furthermore, the effects of rain, ice and snow can soon start to have an impact on the bodywork and underside of your car. Add to that the rock salt that councils spray on the road in winter to melt ice and you have a highly corrosive mixture that will find its way into every crevice under your car, where it will eat through the metal and mark the plastic.

Slowing depreciation

Once you accept that - unless you are a cash payer and can twist a large discount from a dealer - you will lose a substantial money on a brand-new car, you can hopefully limit any further losses by maintaining the car properly, and keeping it clean and tidy. By carrying out car maintenance, you can not only slow depreciation, but may actually add to its value.

Completing car repairs as they come up, you can keep on top of them and ensure that nothing becomes too bad before fixing it. Car maintenance costs increase proportionally to the amount of time they are left untouched, and the longer garage repairs are left, the more they are likely to cost.

Apart from obvious parts like tyre wear, you will need to have your new car serviced at intervals dictated by the manufacturer. Miss one and you will impact your car’s worth on the second-hand market. Garage services are considered esse

Even having stamps from a non-make or dealer garage is enough to knock money off the resale value, and it’s important that you have your servicing carried out by an accredited garage. Main dealer stamps always look best, but will cost you the most.
ntial by potential buyers, who will always want to see the service history stamped as completed by the garage.

car-dealership

Buying a New Car? Much depreciated!

Plainly, depreciation is going to be a factor of any new car purchase. You can limit it by keeping away from extortionate finance deals, and reduce it by taking care of your car during its lifetime. Or you can accept that it is going to happen and simply acknowledge it as part of owning a brand-new car.

Additionally, for warned is forearmed and if you understand that a dealer will always want to sell a vehicle and is prepared to make a deal if you are tenacious enough. You can make significant savings by doggedly negotiating, and that can drastically cut the amount of depreciation that you experience.

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