Car Depreciation

Some people do not realise the effect of depreciation on the value of a car. This is the second biggest cost to a car owner; only the fuel you use is more expensive.

So how does depreciation work?

1. If you are buying a new car, you will probably have heard that the value of the car decreases significantly the moment you drive it away from the garage. This is the impact mainly of VAT as it is charged on the total purchase price.

2. You can avoid the initial full impact of depreciation if you buy a used car. Vat is only then charged on the profit the dealer makes on the sale rather than on the full price. Most dealerships are under huge pressure to hit end of year figures so they qualify for bonus payments. They will often pre-register some of their stock of new cars in October and November to then sell onto clients. So if you are open to buying a car that a dealer has registered but only driven to the garage you may get a great deal. Some buyers have bought at the equivalent of nil VAT prices or even trade prices.

3. Depreciation doesn’t just stop when you drive away though. A car continues to lose value year on year but the amount depends to a large extent on the make and model. The availability of that particular car will have an impact as will the colour, although to a much lesser extent.

4. Some car magazines and websites provide figures showing the anticipated depreciation costs for certain makes and models of car. It might be worth checking into this, especially if you want to buy a car that holds its value better.

5. The cost of depreciation is usually calculated over a three year period. These calculations assume that you will only drive 12000 miles per year. If you do more than this the depreciation cost will increase considerably.

6. Watch out when doing comparisons that you are comparing like with like. You cannot compare a newer model of a car with an older model for instance.

7.You may sometimes hear people saying that a more expensive car could work out to be cheaper in the long term. Sometimes a more expensive model will depreciate, or lose value, at a slower rate than a cheaper car. So after three years, the more expensive purchase could have cost you less money.

8. When buying cars you might want to think about the impact on the environment. The current trend towards lowering your carbon footprint looks set to continue and that may cause petrol engine driven cars to depreciate at a faster rate.

9. You cannot do much about the cost of depreciation but you can do some things to offset the impact. Keeping an up to date service history i.e. getting your car serviced regularly, according to the manufacturers recommendation will add £’s when it comes to resale or trade-in, as will keeping the interior and exterior in excellent condition.

Whilst car depreciation can not be avoided, with some forethought you can minimise the impact on your bank balance by shopping around for the best deal for the model of car that you have decided on.