Car depreciation – everything you need to know

What is car depreciation?

If you're looking to buy a car, sell your car or get a valuation for your car, something that you’ll need to consider is car depreciation and car depreciation rate. Car depreciation refers to the difference in money spent when you purchase a car compared to the amount you’ll receive when you sell it on. It is usually expressed as a percentage.

A car's depreciation in value isn't something that is always considered when buying, but it is the single biggest factor affecting running costs, adding more to cost per mile than fuel. Average car depreciation rate per year tends to be around 10%-15%.

Additionally, when it comes the time to sell, it’s something you will be forced to consider. Therefore, we suggest that you think about how well the vehicle will retain its value, or how much it will depreciate over years of ownership when first making the purchase.

Why do cars depreciate?

There are many factors which contribute to the deprecation of a car. Below we discuss them in depth.

Owner history (multiple owners)

In the automotive industry, there is a perception that the more owners a car has had, the more issues or problems the car has caused the owner. However, this may not always be the case.

On the other hand, when a car has only had a single owner or a couple of owners, it can command a higher price when being sold because it is perceived as more dependable and therefore more desirable.

Incomplete service history or warranty cover

Servicing history is extremely important if you want to decrease or slow the rate of depreciation of your car. Keeping your service schedule up to date and keeping a log of all the work that has been carried out on the car can really help to reduce depreciation when it comes time to sell.

You may also find that your car has come with a manufacturer warranty. For example, all new Kia cars come with a seven-year warranty. If you are selling your car in its eighth year, the rate of depreciation would be increased, as your car is no longer covered by a warranty.

High mileage

The average UK annual mileage is around 8,000 – 12,000 miles per year. That means, if you have more miles on the clock than the average driver does, your car will be depreciating at a quicker rate. Ultimately, the more miles a car has on the clock, the less it is worth.

Brand and model

There are certain manufacturers who create and produce cars which retain residual value better than others. Some examples of cars which have a slower rate of depreciation include:

• Audi RS3
• Mercedes-Benz G-Class
• Land Rover Defender
• Range Rover
• BMW i3
• Dacia Sandero

Safety

If a car has a reputation for being reliable or having an impressive safety rating and not known for failing MOTs, this will make it more attractive to buyers when it comes to selling. On the other hand, if a model has been recalled, this can negatively impact the residual value and result in a faster rate of depreciation.

Popularity

Similarly, if a car is popular and sought after among drivers, it will be easier to sell than an older model, as it is high in demand. Additionally, most models undergo updates and facelifts, and it’s usually the case that the newer, facelifted model will have a higher residual value than the older model.

Fuel economy

If a model is known for its fuel efficiency and general affordability, it tends to depreciate less or slower than other models. This is because smaller, affordable, efficient cars always stay high in demand with car buyers.

• Top 10 most fuel efficient cars of 2024

Size and cost

When you a buy a car with a higher price tag, like a high-performance car or an SUV, there is more room for depreciation because of the higher cost at the point of purchase than those who buy a small supermini.

Road tax

Vehicles with lower road tax tend to depreciate less or slower than vehicles with extremely high road tax. This is because drivers typically seek out vehicles with low road tax to keep running costs low. This results in high demand among car buyers.

Emission regulation compliance

With the introduction of Low Emission Zones (LEZs), Clean Air Zones (CAZs) and Ultra Low Emission Zones (ULEZs) throughout the UK, non-compliant vehicles are depreciating in value quickly as they become less desirable to drivers who frequent areas covered by emission-restrictions.

Car depreciation rates

There are several factors which impact the exact rate of car depreciation. Depreciation varies depending on what type of car it is, how many miles it has been driven, the condition of the car, etc.

There are also times when vehicle depreciation rates can be irregular. For example, during the Covid-19 pandemic, used cars retained their value far more than they had previously. This was a direct result of the delay in production and delivery of new cars. This has since returned to pre-Covid car depreciation rates.

Average car depreciation per year

Typically, car depreciation is highest in the first year of ownership. A car's value will drop around 15% – 35% in the first 12 months; this continues every year thereafter, but the rate of depreciation slows.

It’s unlikely that a car will depreciate at the same rate every year, but there are a few averages you can refer to which will help in understanding general vehicle depreciation rates across the market.

How to avoid car depreciation

Car depreciation is unavoidable, but there are a few things that you can do to help protect your residual value when it comes time to sell.

8,000 - 10,000 miles per year

It goes without saying that keeping your mileage low or in keeping with national averages can help slow down the car's rate of depreciation. Remember, the more miles you do, the faster the rate of depreciation.

Keep you car in good condition

If your car is kept in good condition and well maintained, it will be more attractive to potential buyers. A car in poor condition or state of repair will command a lower residual value than a car in immaculate condition.

Regular servicing and maintenance

Regularly servicing and carrying out any maintenance or repair work in a timely manner slows down car depreciation. You can check your manufacturer handbook for model-specific information on servicing scheduling. Using manufacturer approved parts when having repair work done can also help with residual value.

• What does a car service include?
• MOT test - Our guide

Modifications

It's probably safer to avoid or remove any modifications, such as spoilers, to protect your car's residual value. Although, you may like modifications, they may not be to everyone's taste. There are some modifications which may add to a car’s residual value, such as adding alloy wheel or installing a sunroof.

• Selling modified cars - everything you need to know

Lease a car

Leasing a car means you won't own the car, but it can be an effective way of managing depreciation costs. Paying a fixed monthly amount for the car means you can spread your costs over the term of the contract and won’t need to worry about selling it in the future.

Electric car depreciation

The same factors that apply to internal combustion engine car depreciation will typically apply to electric cars, too. The main difference is the battery within electric cars. There are some electric cars which have a good residual value, including:

• Smart ForFour
• Hyundai IONIQ
• Tesla Model X
• Polestar 2

Conclusion

In conclusion, car depreciation, no matter the car type or fuel type, is unavoidable. However, there are things we can do to slow the rate of depreciation down. Thoroughly research your car’s estimated residual value and try to choose a model which retains a higher residual. Additionally, taking good care of your car and ensuring it is well maintained and regularly serviced is our advice when it comes to slowing or decreasing depreciation.