When choosing a new car or van, depreciation is something you should consider before making a decision.
How much a vehicle depreciates can transform a great deal into one that burns a hole in your pocket.
To help you understand depreciation more and what contributes to it, we’ve included everything you need to know in our car and van depreciation guide below.
What is vehicle depreciation?
Depreciation is how much value your car or van loses from when you buy it to when you sell it. If a vehicle holds its value well, it means it doesn’t depreciate as much as others.
Typically, brand-new vehicles depreciate much faster than used ones – as you’re paying for the privilege of a brand-new car or van. And the depreciation starts as soon as you drive the vehicle off the forecourt.
Usually, in the early years of its life, an expensive vehicle will drop more in value than a cheaper one. But its residual value – how much it’s worth when you come to sell it – will often be higher.
How much does a vehicle depreciate per year?
How much a vehicle depreciates depends on several factors. However, on a brand-new vehicle, you can expect a 15%-35% drop in value in the first year alone.
After another couple of years, the vehicle will be worth up to 50% less than you initially paid for it.
Following the big initial drop, the vehicle’s value then begins to level out – losing between 15%-18% each year, according to data from Black Book. The drop in value then continues until the vehicle becomes effectively “worthless”.
According to CAP Automotive, vehicle depreciation heavily outweighs the standard day-to-day costs of running a vehicle. So, although buying a car or van with good fuel economy may seem like the best way to save, it’s often finding a vehicle which holds its value well where you see the biggest return.
How vehicle price affects depreciation
The initial cost of the vehicle you buy plays a big role in its depreciation. If you buy a more expensive car or van, the initial depreciation will be higher than if you were to choose a less expensive model.
Using the data from above as an example, if you bought a car for £30,000, it could lose up to £10,500 of its value in the first 12 months alone.
However, more expensive cars are often more desirable – meaning people will pay more for them second hand. So, even though there’s a chance an expensive vehicle could lose over a third of its value in the first year, it’s unlikely.
The higher percentage of depreciation is often applicable for vehicles which are low in cost to begin with. For example, a small city car will likely have a higher percentage of depreciation than a luxury saloon in the first year – albeit the actual monetary cost of depreciation may be lower as the initial value of the vehicle is lower.
How vehicle quality affects depreciation
Just like price, quality also plays a substantial role in how well a vehicle holds its value.
That’s because those manufacturers, as well as others, have built strong reputations of reliability, luxury and desirability.
And that all translates to people being willing to pay more for a used model – meaning the vehicle doesn’t depreciate as much.
How running costs affect depreciation
Many see running costs as an extremely important factor when it comes to looking for a new vehicle.
You don’t want to be stuck with something that comes with big costs on a daily basis unless you’re getting value back from other areas.
And that’s the same whether you’re looking for a brand-new vehicle or a used model. Because of that, vehicles with lower running costs often hold their value better than those which cost a lot to keep.
However, that’s not always the case, as high-powered, luxury sports cars, for example, or fuel-guzzling SUVs can be more desirable than a fuel-efficient saloon.
So, when it comes to choosing the right car for you, it’s important to take that into consideration. Because, as CAP Automotive discovered, the money you lose in depreciation often heavily outweighs what you save at the fuel pump.
How mileage affects depreciation
Mileage is another contributing factor to a vehicle’s depreciation. The more miles a car or van has on it, the less it’s worth.
Because of that, the more miles you do in your vehicle, the less it’ll be worth when it comes to selling it.
The average driver covers about 10,000 miles a year, so if you’re doing more than that, you may find that your vehicle depreciates faster than the norm.
How vehicle condition affects depreciation
If your vehicle is in good condition when you come to sell it, you’ll usually get more for it than if you hadn’t looked after it.
That’s because the person or company you’re selling it to will likely face repair costs to get it back to its original condition if it’s damaged. So, if you don’t look after your car or van, it’ll depreciate faster.
That also includes regular servicing. If you don’t keep your vehicle in good condition internally, you may find it’s worth less than you’d hoped when you come to sell it.
How new models affect depreciation
If you buy a brand-new vehicle, and then a couple of years later the manufacturer brings out an updated model, more often than not, that’ll have an impact on how much your vehicle is worth.
Because most prefer to have the latest in technology, styling and safety, you’ll typically find that your vehicle suffers a sharp drop in value.
It’s not always easy to predict when a manufacturer will update their range; however, it’s important to do your research before choosing your car or van.
On the flip side, however, buying a model from new which has just been replaced can come with big savings.
How desirability affects depreciation
A vehicle may be desirable for any number of reasons. It may be a special edition, high in quality, reputable in make – the list goes on.
If your vehicle is desirable, it’ll be worth more when it comes to selling it. So, if you want to limit depreciation, look for a car or van which still sells well in the used market.
How to avoid depreciation
When you own a vehicle, apart from a few very rare cases, depreciation is impossible to escape.
It’s almost certain that when you buy a car or van it’ll lose value during your ownership. Although you can limit it with the type of vehicle you choose.
If you buy into a brand that’s reputable; one that sells well in the used market, high in quality and comes with low running costs, then you’ll find you don’t lose as much as if you’d bought cheap and cheerful.
However, there’s also another way. Leasing.
How leasing helps you avoid depreciation
When you lease a car or van, you never own it. That means you never have to worry about its depreciation because you never have to sell it.
Instead, with a lease, when your contract is up, you simply hand the vehicle back and walk away – free to pick your next vehicle.
By leasing, you get free range over what vehicle you want without the worry of what may come later down the line.
It also means you can keep your vehicle fresh. Most lease contracts run between 12-48 months, so you can get into a new car or van more frequently.
Also, with a lease, your monthly payments are often much lower than if you were to take out the vehicle on finance.
And because you never pay the full cost of the vehicle – as your monthly payments only cover the vehicle’s depreciation throughout your term – you can usually get a more expensive vehicle than you would otherwise be able to afford when buying outright.
As well, with leasing, road tax is included and you can incorporate maintenance packages into your monthly price, so your day-to-day running costs are simply insurance and fuel.
Simply put, there’s no better way to avoid depreciation than leasing.
If you’re unsure whether leasing is right for you, you can read our guides to both car and van leasing below.
Guides to car and van leasing (need to see if we have a block for this)
Alternatively, if you’d like to see if you’ll be accepted for a lease without affecting your credit score, simply click Apply Now below or visit our Apply Now explainer page by clicking the button below.