Buying a brand-new car is very exciting but did you know that a new vehicle’s value can fall at an alarming rate? After purchasing a new car you may have chosen some nice gadgets to have onboard or for the picked out some alloy wheels and sports trim. However, people often overlook the car depreciation rate.
Many people consider the cost of car insurance in NI when buying new cars but others consider the cost of the vehicle itself. If the latter is true for you or if you plan on selling the car in exchange for an upgrade a few years down the line, then it’s important to remember that the car is going to lose value the second you drive it off the forecourt.
If you’re one of those who consider depreciation an important factor when buying a new car, then this post has everything you need to know about car depreciation in Northern Ireland.
What is car depreciation?
In the first year, your new car will lose a chunk of its value. That’s depreciation in a nutshell: the difference between the price of the car when you bought it and what it’s worth when you sell it.
So, for example, you might buy a car for £30,000. After the first year, if you want to sell it, it’s likely it’s now only worth £18,000.
Although the first year of ownership usually
witnesses the biggest hit, the car depreciation will begin to slow down after
the third year.
What Factors Affect a Car’s Depreciation Rate?
The depreciation of cars depends on several factors including:
The make and model – popular and highly sought-after cars keep their value better.
The brand – in the UK and Ireland, the car marque is important: luxury cars hold their value better while cars that depreciate the most include French and Italian brands like Renault and Fiat.
Wear and tear – if you neglect your car, this will show up in the resell price. Conversely, keep your car in good nick – with regular servicing – and it will hold its value better.
Efficiency – eco-friendly and fuel-efficient cars depreciate in value slower. We’re even seeing that electric cars hold their value better over time – according to CarWow, electric cars buck the industry trend with an average EV retain 48.9% of its value after three years or 36,000 miles. Yet another reason to go greener!
Mileage - The more miles you have on your odometer, the less your car
is worth. High mileage often results in a shortened lifespan for the new owner.
It also means increased costs for upkeep.
More: How to save Fuel & Money When Driving
How Much Does a Car Depreciate per Year?
As mentioned, new cars depreciate or lose their value at a much higher rate which is often the reason why many people opt for a used car.
A new car will have lost approximately 10% of its value the minute it’s driven from the dealership. During the first year, the average depreciation rate of a car is between 15-35%. After three years, a car’s value can be reduced by 50-60%.
The depreciation rate begins to slow down as the car gets older. Remember that this rate still depends on a number of factors such as the brand of car and mileage.
How to Calculate the Depreciation Value of a Car
There are many car depreciation calculators available to help you estimate the current value of your car. You’ll just need the current value or purchase price of your vehicle, the current age, the number of years you predict to own the car and predicted annual mileage. You may also need the make and model of your car.
For example, you purchase a Peugeot 3008 that’s a year old at a price of £25,000. The average depreciation rate of a car is between 15-35% during the first year. Considering mileage, condition and other factors affecting depreciation, if the depreciation rate is 20% then the value of your car will be worth £20,000 after one year.
How Can I Slow the Depreciation Rate?
You can’t stop it completely but there are things you can do to help slow depreciation and hold your car's value for longer.
- Keep your mileage down as much as possible.
- Service your car using a certified mechanic or dealership.
- Avoid modifications like
such as tinted windows and alloy wheels.
- If you do want to sell, time it carefully: sell before the next release of that series.
- Think about buying a newish rather than a new car to avoid the first year’s depreciation.
- Repair any damage as soon as possible and take good care of your car.
- A car’s colour may seem like something simple but stick to popular shades when purchasing a car. Outrageous colours can depreciate the car as many buyers are put off by these colours.
It might be worth taking out GAP insurance (Guaranteed Asset Protection) so you’re covered for the difference between the amount you paid for your car and the amount your insurer will pay out if your car is written off/stolen.
A standard insurance policy usually covers the current value of your vehicle at the time of a claim. This is not good news if you’ve bought a new or newish car as we know by now that these cars depreciate quickly within the first year or two.
GAP insurance bridges the gap by making up the difference between what you paid for your car and what it’s worth at the time of a claim. It’s especially useful for those who took out financing and are making repayments.