When it comes to buying a car there are numerous factors to consider, and ultimately we all want to get good value for the money we put into a purchase. Value for money when buying a car doesn’t just involve the price you pay when you buy it though – more often than not we need to consider the value we’ll get from re-selling it in the future.
Depreciation is one of the biggest factors to be assessed when making this decision, but it can frequently be overlooked in favour of style and desirability at the time.
Most cars depreciate at a rate of around 20% per year over the first three years of ownership, but there are a number of things to take into consideration which could help you retain as much value as possible thereafter.
The Key Factors:
The general reliability of your car is crucial in reducing depreciation – certain manufacturers have a reputation for unreliability so a bit of brand research is a must. The less you have to spend after services and MOTs, the better it is at the time and in the long run. In terms of MOTs and services, it is key to maintain a full service history to illustrate reliability as well.
Fuel type and MPG can have a significant impact on depreciation. Typically, diesel cars are more economical but the gap is closing as petrol engine efficiency improves, so newer petrol models should maintain value well. Looking ahead, hybrid and alternative energy vehicles will be a good option as, due to increasing demand, value will be more solidified. In addition to economy, overall mileage has a huge effect on value as the higher the mileage, the lower the value.
By-and-large, the bigger the car the higher the running and maintenance costs will be, so the resale value for superminis and hatchbacks is usually very good. Buying a car with lower running costs, including fuel, will in turn lead to a lower road tax which is highly desirable in a second-hand car.
A car’s value also affects insurance – for a lower value car an owner could consider third party or third party fire and theft policies to reduce their premiums. Insurers also study information on estimated cost of repairs and potential repair time, so reliability and depreciation has a major bearing on the overall cost of insurance.
The original cost of the car is worth bearing in mind, as if you take into account 20% depreciation per year during the first three years, a car worth £60,000 will depreciate by £12,000 per year as opposed to a £20,000 car retaining far more of its value by losing £4,000 per year.
Minimising Depreciation / Maximising Value
- Maintenance – taking good care of your car on and off the read is key. Damaged bodywork and interiors will decrease value, as will worn out engines that have been aggressively driven. Buying a Haynes manual for your car is a great way of helping to reduce running costs too.
- Don’t buy brand new – buying a ‘nearly-new’ or a five-year-old car will help you avoid the stage where the most depreciation occurs. Buying an eight to ten-year-old car is also an option, as this won’t depreciate any more than it already has, but this needs to be weighed up against potentially higher repair costs.
- Don’t modify, choose extras wisely – ‘boy racer’ modifications such as spoilers, noisy split exhausts and flared wheel arches tend not to be desirable in the second-hand car market. However, options such as sat-nav, leather seats and air con are highly desirable and will be valuable additions.
- Consider GAP insurance – because your car starts losing value the moment you drive off the forecourt, a GAP insurance policy is worth investing in if you’re paying for the car on finance. So, if you’ve bought a relatively new car and anything unforeseen happens to it the GAP insurance will cover the value lost by depreciation.
- Leasing – this can be a good option in terms of keeping the running costs and repairs down, as they are generally included in your fixed monthly payments. Particularly useful for those that will have high mileage, but keep an eye out for mileage limits in the contract as they can be very costly.
Depreciation is something we all have to tackle if we’re buying a car, but hopefully with these tips you can make the most out of what is for many people, not just a means of getting around, but a great way of having fun and extension of their personality.