How Much Do Cars Depreciate Per Year?

Car depreciation is an inevitable part of owning a vehicle, but understanding how it works and how much value your car loses each year can help you make better decisions when it comes to buying, selling, or maintaining your car.

In this blog, we’ll explore how much cars typically depreciate, what factors influence depreciation, and most importantly, how you can slow down the process to retain more value in your vehicle over time.

What is car depreciation?

Car depreciation refers to the process of a vehicle losing value over time – put simply, it shows the difference between the price you paid for the vehicle and what it is worth when you decide to sell it.

When you first purchase a car, it begins to lose value as soon as it is driven off the dealership lot. This is because the car is now considered “used,” even though it might only have been driven a short distance. The largest depreciation typically occurs in the first year, but depreciation continues over time, albeit at a slower pace.

Depreciation is an important consideration for anyone thinking about selling a car or buying a used one. It can help buyers gauge whether a car will hold its value well and whether they can expect to recoup a significant amount of their initial investment. For sellers, understanding depreciation can help in setting a realistic price when it’s time to sell. Ultimately, car depreciation is a natural part of owning a vehicle and plays a significant role in the overall cost of car ownership.

How much do cars depreciate each year?

On average, cars lose around 15% to 20% of their value each year during the first few years of ownership. This means that a new car can lose a significant portion of its value within the first 12 months, often around 20% or more. After the first year, the rate of depreciation slows down, but cars will continue to lose value over time, typically at a rate of 10% to 15% per year for the following few years.

By the time a car reaches five years of age, it will have typically lost around 60% to 70% of its original value. However, some cars, particularly those from luxury brands or well-known for their reliability, could retain more of their value. After this five-year mark, depreciation tends to slow even further, although the vehicle’s resale value will continue to decrease, especially as it nears the end of its useful life.

What affects car depreciation?

There are various factors that will affect how much a car depreciates over time. By considering these factors when purchasing a vehicle, you can better predict how much it will depreciate over time and make choices that preserve its value.

Age and mileage

As a car ages, it naturally loses value. The more years it has been on the road, the less it will typically be worth. High mileage also increases depreciation, as cars with more miles are seen as having more wear and tear.

Make and model

Some brands and models hold their value better than others. Vehicles from premium or luxury brands often depreciate slower compared to mass-market models. There are also certain models that have a reputation for reliability and longevity, which tend to see less depreciation over time.

Condition

The overall condition of the car, including its interior and exterior, has a significant impact on depreciation. A well-maintained car will generally be worth more when it’s time to sell or trade it in.

Market demand

A vehicle’s popularity in the market can also affect how quickly it depreciates. If a car is in high demand, it could hold its value better. Conversely, if a model becomes less desirable, whether due to changes in consumer preferences or an oversupply of that model in the market, depreciation might speed up.

Fuel efficiency and running costs

Cars that are known for being fuel-efficient or have low running costs tend to depreciate slower, as these qualities are appealing to buyers. For example, hybrid and electric vehicles are becoming increasingly popular, meaning they could lose value at a slower rate compared to traditional petrol or diesel cars.

Colour

While it might seem like a minor detail, the colour of a car can impact its resale value. Neutral colours like black, white, and silver tend to have broader appeal, while more unusual colours might not attract as many potential buyers, which can speed up depreciation.

Can you slow down car depreciation?

Car depreciation is inevitable, however, there are a few ways you can slow down the process and help preserve your vehicle’s value.

Regular maintenance

Keeping your car in good condition is one of the most effective ways to slow down depreciation. Regular servicing, oil changes, and prompt repairs will ensure that your car continues to run smoothly and remains in good working order. Not only will maintaining the vehicle’s health help to expand its lifespan, but a good service record will also be attractive to potential buyers, which can help boost it’s value.

Keep mileage low

The fewer miles a car has, the better its resale value. High mileage is one of the biggest factors in depreciation, so limiting how much you drive your car can help maintain its value. Of course, this might not always be practical, but keeping the mileage within reasonable limits will help reduce its depreciation.

Keep the car clean and in good condition

Both the exterior and interior of your car play a role in how much it depreciates. Regularly washing the car, waxing the paint, and cleaning the interior will help to maintain its appearance and prevent the buildup of dirt and grime that can cause damage. If your car has any dents or scratches, getting them repaired promptly can prevent further damage and preserve its look.

Protect it from the elements

Exposure to harsh weather conditions, such as excessive sun, rain, or snow, can accelerate the wear and tear on your car. Whenever possible, you should park your car in a garage or use a car cover to protect it from the elements. This can prevent fading of the paint, rust, and other long-term damage caused by environmental factors.

Avoid accidents and damage

Accidents and visible damage can significantly lower your car’s value. Being cautious and driving responsibly can help prevent damage from collisions, which could cause your car to lose value faster. If your car is involved in an accident, having it repaired by a professional with genuine parts will help maintain its value better than using cheaper, less reliable repair options.

Choose a popular make and model

Whilst you can’t change the brand of your car after purchasing it, selecting a make and model that has a strong reputation for reliability and high demand in the used car market can help slow depreciation. Brands like Toyota, Honda, and BMW tend to hold their value better over time.

Limit modifications

Personalising your car with modifications might make it more enjoyable for you, but it can sometimes negatively affect its resale value. Buyers tend to prefer cars that are closer to their original specifications, so making extensive modifications could limit the pool of potential buyers when you decide to sell.

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