Car depreciation – the ultimate guide
Car depreciation impacts every car car as its value falls over time and explains your car’s current market value. You can better understand your car’s depreciation by getting an instant car valuation with our free Car Value Tracker.
In practical terms, car depreciation is the difference between what your car was worth when you bought it, and how much it’s worth now if you were to sell it today.
Traditionally, it’s been understood that every new car will lose some value as soon as it’s driven off the forecourt. That said, since 2021, due to new car shortages, some used cars held their value better, and even gained value in some cases. However traditional depreciation returned to the used car market for most vehicles in the second half of 2023, as demand slowed due to a number of factors, including growing new car sales and the cost of living crisis.
Your car is unlikely to depreciate at the same rate every year, so, to identify the best time to sell your car, it’s wise to closely track its value over time.
Read on to learn more about what drives car depreciation, and how to mitigate it.
- What is car depreciation?
- What factors contribute to depreciation?
- Are petrol and diesel cars depreciating the fastest?
- How fast will my car depreciate?
- What are the averages for car depreciation?
- The best way to track your car’s value
- How to improve your car’s depreciation rate
- How important is car depreciation when buying or selling a car?
What is car depreciation?
Car depreciation is simply the difference between the price you pay when you buy your car, and the price you would get today if you decided to sell it. It’s the rate at which your car’s value falls over time.
Depreciation is normally expressed as a percentage, e.g. you might expect your new Mercedes to depreciate 20-25% over the first two years.
A depreciation rate is that percentage normalised to a time value. You might say a car has an average depreciation rate of 10-15% a year, although, since that figure is an average, it does not necessarily describe the real-terms changes in value a car might see in any given year.
The basics of car depreciation:
Any vehicle will generally be most valuable when it has just rolled away from the factory production line and into a showroom. It’s brand new and pristine. So you’ll pay somewhere close to the manufacturer listed price for the pleasure of owning it.
But five years later it will have covered around 40,000 miles on average and, in that time, normal wear and tear will have affected various parts on the outside and inside. It may have received the odd scratch or scrape, or spilled food and drink on the interior. So when you decide to sell, it will normally be for less than you originally paid.
Again, so far in the 2020s, we have seen plenty of vehicles bucking depreciation trends, so it’s important to have a specific understanding of your own car’s value before making assumptions.
What factors contribute to depreciation?
There are a number of factors which will change how much your car is worth. And while some are fairly obvious, you might not have taken all of them into account when choosing which car to buy.
- Mileage: The more mileage your car has on the clock, the less your car is worth. The average UK annual mileage is around 8 – 12,000 miles per year. Doing a lot more will mean your car depreciates faster.
- Previous owners: More owners will mean trusting a higher number of people and a greater chance of potential issues in the past.
- Warranty and service history: Is there a long warranty left? Some manufacturers offer seven years of cover, helping to maintain a high resale value. It’s equally recommended to keep stamps from the main dealer showing you’ve kept to the recommended service history.
- Brand and model reliability: Are you buying a car that has a reputation for breaking down? This will limit the number of potential buyers in the future, and lower the value based on demand.
- Brand and model desirability: leading models by brands with good reputations for reliability and strong demand will usually depreciate at a lesser rate. Some cars are replaced with new designs every few years, so a recent, more current example will hold value better than the last examples of the ‘old’ design.
- Fuel economy: Smaller, more fuel-efficient cars will tend to depreciate less. They cost less to run, and appeal to a larger pool of buyers, keeping demand higher.
- Size and cost: Larger, expensive luxury cars like SUVs will typically cost more to buy new. It can mean that their value has further to fall than a cheap car, and that there are higher costs associated with fuel, parts, and maintenance.
- Road tax: Less pollutive cars cost less to tax every year, which makes them more appealing to buyers.
- Safety: Safety tests and ratings can have an effect on demand, along with any widespread faults and manufacturer recalls. For individual cars, this also includes failed MOTs or known issues.
- Compliance: with ULEZ in London now in full force, cars that are not Euro 6 compliant have seen accelerating depreciation in recent times as they are less desirable for many people entering the capital.
Are petrol and diesel cars depreciating the fastest?
Older petrol and diesel vehicles are losing value in the UK, particularly when they are not Euro 6 compliant. We’re approaching the 2035 electric vehicle ‘switchover’ deadline, which will ban the sale of all new fossil fuel cars. The first wave of regulations towards this date are enforcing Euro 4 compliance for petrol vehicles and Euro 6 for diesel, to ensure that vehicles on the road, particularly in busy places, are less polluting.
London’s ULEZ and other clean air zones (CAZs) such as Bristol’s Clean Air Zone and Birmingham’s Clean Air Zone are affecting pricing of all cars locally, with compliant models seeing their value stay high, and non-compliant models falling behind. With that in mind, now may be the ideal time to sell your petrol or diesel car with Motorway to one of over 5,000 verified dealers in our nationwide network.
How fast will my car depreciate?
You can get an idea of future depreciation with some fairly quick and simple research before buying your next car.
In the past, depreciation has been strongly linked to certain brands and generalised trends, with German luxury makes faring better than cheaper French or German manufacturers. However, these days, depreciation is much more variable on a car model-by-model basis.
The only way to stay on top of your car’s ongoing value and spotting changes and trends is to track the valuation continually. With our new Car Value Tracker, you can track up to six cars just by entering their reg and mileage – and it’s free!
The best and worst examples of car depreciation tend to get published towards the start and end of each year.
What are the averages for car depreciation?
With so many factors contributing to the exact rate of car depreciation, there can be enormous variations within ranges of models from an individual manufacturer. So how do you know roughly what to expect?
The average car depreciation will hit hardest in the first year of ownership. Generally, the drop will be around 15-35% in the first 12 months. And that will continue to rise up to 50% or more over three years.
- Year 1: 15-35% depreciation. 65-85% of the original value.
- Year 3: 40-60% depreciation. 40-65% of the original value.
- Year 5: 60-70% depreciation. 30-40% of the original value.
- Year 8-10: 80% depreciation. 20% of the original value.
By the end of the first decade, a car will have effectively bottomed out in terms of value and depreciation. From this point prices will tend to stay the same or even begin to rise slightly if a car is seen as an emerging classic.
If you estimated the typical lifespan of a car to be 20 years, the average depreciation every year would actually be a 15% drop every 12 months.
However, it’s paramount to note that your own car’s depreciation rate will likely be much more variable than these averages, and there can be times where your car’s value holds or even increases.
The best way to track your car’s value
Staying on top of your car’s value is the best thing you can do in order to avoid surprises in its depreciation. When you track changes to its value over time, you can find the very best time for you to sell, based on your needs.
Our new Car Value Tracker tool allows you to track up to six cars for free, based on their reg and mileage. We use historic and live sales data from our platform to track cars just like yours, and create historical estimates going back two years as well as providing up-to-date valuations. You can see all this data on a graph to visualise the rate at which your car’s value is changing.
Since car depreciation is dynamic and not normally a linear trend, getting monthly updates gives you clearer insight into when your car’s value might be dropping, holding, or even increasing.
Whether you’re ready to sell your car or not, it pays to track it like any other financial asset. Get started with Car Value Tracker now.
How to improve your car’s depreciation rate
Whatever car you’ve bought, it’s possible to slow down the rate of depreciation and get the best possible resale value with some relatively simple steps.
Looking after your vehicle and maintaining it properly will mean you lose less money when it’s time to sell. Additionally, it will improve your safety and fuel efficiency, saving you even more.
Key ways to minimise your car depreciation include:
- Keeping your mileage down if possible
- Keep it clean and looked after – check our guide to washing and waxing your car
- Maintaining your car according to manufacturer recommendations, and keeping all service records and receipts
- Using manufacturer recommended parts to repair any damage as soon as possible
- Avoid smoking or taking pets in your car
- Avoid or remove modifications such as spoilers or aftermarket wheel arches
- Check and prevent MOT failures for simple faults, and look at any recorded issues. Get tips in our ultimate MOT guide.
How important is car depreciation when buying or selling a car?
Depreciation can be seen as the second biggest cost of buying a car after fuel. While petrol prices vary over time, depreciation is, over the lifetime of your car, a certainty.
If you’re buying a new car, it’s wise to try and work out at what point your car will see the most dramatic drop in value. Often, this happens within the first few years, before slowing down as your car hits ‘middle-age’, from about three or four years old.
Similarly, if you’re buying a used car, and sizing up the price, you need to think carefully about whether you’re likely to want to sell the car at some stage. If so, try to work out that car’s depreciation journey so far, and for the next few years.
There are still potential benefits to buying a new car. You don’t need to worry about previous owners, warranties, or MOTs. And some car buyers think that the initial depreciation is a price worth paying to always have the latest model.
Buying an 8-year-old car just to be sure of its price staying stable a few years, might end up costing you more in maintenance and running costs, as it’s more likely to break down and need parts replacing.
So the key is to understand which brands and models are the safest bets for low depreciation. And which cars you might want to avoid if you don’t want to be spending more than you want.
Ready to sell your car?
Want to read more about owning, valuing and selling your car? Check out more of our guides here, covering everything from depreciation to maintaining your car’s value. Understand your car’s worth in the wider market.
- Car valuation – value your car online with Motorway’s Car Value Tracker
- More cash in the bank when you sell
- How much is your car worth?
- Euro 6 ultimate guide
- Ultimate guide to service history
- Is my car insured? How to check your car has insurance
- What insurance group is my car?
- How to buy or sell a private number plate
- Should you sell a diesel car?
- Should you sell a petrol car?
- Should you sell an electric car?
- Ways to own a car
- Scrap your car