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Car Depreciation Explained

If you’re buying a car, particularly if you’re buying a brand new car, it’s important to take the car’s depreciation value into account. Knowing a car’s potential depreciation value could help you make a decision that is more cost effective in the long term.

What is Car Depreciation?

Simply put, a car’s depreciation value is the difference between what you paid for it and what it’s worth when you come to sell it or trade it in. Typically a new car will lose up to 40% of its value by the end of the first year and this figure could increase by up to 60% by the time the car is three years old.

What depreciates a car's value?

There are lots of factors involved in a car’s depreciation, with the biggest being its age. A new car will start to depreciate the moment you drive it off the forecourt, whereas cars that are 2 to 3 years old will hold their value a little better.

It’s also important to consider the popularity of the make of car you’re are buying. The higher the demand for the car, the less it tends to devalue over time. A car’s perceived efficiency also makes a difference; cars with a reputation for being more reliable tend to keep their value better than others. Car buyers today focus heavily on fuel economy, so cars that are cheaper to run tend to remain popular and keep their value for longer.

How can you reduce your car's depreciation?

Whilst there’s not a lot you can do about who made your car and how old it is, there are still a few ways to reduce its value depreciation.

Well-maintained cars hold their value better, and a full history of regular servicing will ensure a better price in the future. Your mileage is also a contributing factor, as the fewer miles on the clock, the less value your car will lose.

Gap Insurance

It’s impossible to stop a car from losing its value over time, but you can take out insurance that reduces the difference in what you originally paid for a car and what your insurer pays out if it is written off or stolen. A ‘GAP’ insurance will pay out the current market value of the car. This will be lower than the original amount paid for the car but will reduce the impact of the car’s value depreciating over time.

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