One of the main considerations you’ll have when you’re upgrading your vehicle is whether you should purchase a new or used vehicle. There are plenty of pros and cons to both, but depreciation is an important factor. Below, we explore what this is and the average depreciation of new vehicles.
What is depreciation?
Essentially, depreciation is the difference in value between the moment you buy your car and the moment you sell it. If your car has depreciated significantly in value, you’ll find that you sell it for a much lower price than you bought it for. Not every car will depreciate at the same rate though. In fact, there are a range of factors that will influence this rate.
What factors influence it?
By understanding the factors that influence car depreciation, you can begin to take steps to limit this. For a start, mileage is key: the more you use your car, the less it’ll be worth. On top of this, the general condition of the car and the number of previous owners will also influence the value. Similarly, the service history of the vehicle counts for a lot – if you can demonstrate that your car has been reliable in the past, it’ll have a higher value. Finally, the desirability of the car model will also be important. After all, some models are trendier than others.
The depreciation on your new car
But by how much exactly will your new car depreciate? For a brand-new car, you can expect to lose between 15 and 35 per cent of its value in the first year. This is one of the main factors that put people off buying a new vehicle. However, new cars will continue to depreciate even after this first year. By year three, you can expect between 40 and 60 per cent depreciation and by year five this will reach 60 to 70 per cent depreciation.
What you can do
But there are ways that you can plan around new car depreciation. For a start, by pivoting towards used cars, you can avoid the worry of your asset losing a significant proportion of its value. By searching online for used cars, you can browse a wide range of vehicles that won’t depreciate as damagingly as a new car. If you do decide you want a new vehicle, you could always consider gap insurance to protect your investment, though.
One of the main things that can put you off a new car is depreciation. However, by focusing on used cars instead, you can find a sleek, trustworthy vehicle that fits your budget.