How much do cars depreciate per year?

Depreciation is motoring’s big hidden cost. While you can see how much you are spending on fuel when you check your credit card bill at the end of the month, a car’s loss in value over time slips by unnoticed. Or at least, you don’t notice until the time comes to sell your car. Just how much does a car depreciate each year? This Carwow guide will explain.

What is car depreciation?

Depreciation is a car’s loss in value over time. With very few exceptions, all cars lose value each year. The average loss in value each year will vary from model to model – in fact there are all sorts of factors behind how much value a car loses.

How much do cars depreciate per year?

This is one of those ‘how long is a piece of string?’ questions. Typically, a car loses value most quickly in its first year on the road. The average rate at which it loses value slows down over subsequent years.

First year: depending on the car and lots of other variables, a car may lose 15-35% of its value in the first year.

Years two and three: After that first big drop, the rate of depreciation tends to slow down to around 10-15% from the start of year two.

Years four and five onwards: Depreciation will continue at a similar rate in percentage terms, although the drop in cash terms becomes smaller over time as the value of the car shrinks.

Years eight to 10: As the car ages the rate of depreciation will gradually slow down. By the time it is a decade old it won’t lose much more value, provided the car is well maintained and cared for.

What factors contribute to car depreciation?

While we can talk about an average loss in value over time, any average figure is just a rough guide. All sorts of things contribute to a car’s true rate of depreciation.

Make and model

This is a big one. Different cars depreciate at different rates. It all comes down to supply and demand. If there are more potential buyers than cars for sale, values stay healthy. If there are plenty of cars but few interested in buying, then values drop sharply.
As a rule, cars with prestige badges hold their value better than mid-market, mainstream cars. It’s not just about whether the brand is desirable, there can be differences between specific models, too.

Body style

Whether it’s rational or not, SUVs are more popular than MPVs. So, if you want to keep depreciation to a minimum, it makes sense to choose an SUV or another fashionable body style. The more people who will want the car when you eventually sell it on, the slower its rate of depreciation.

Mileage

The higher the mileage, the more value the car will lose. This can play in your favour if you are shopping for a used car, as a high-mileage car that’s been used on the motorway may have less wear and tear than a low-mileage alternative that’s been driven on stop-start journeys.
Landmark numbers, such as 50,000 miles and 100,000 miles, can be barriers for some used car buyers, pushing values down once a car is beyond that mileage.

Previous owners

If a car has lots of previous owners, it tends to be worth a little less than one that’s been owned by just one or two people. Rightly or wrongly, many buyers see one or two owners over several years as a sign the car has been cared for and well looked after. If it has many owners, it raises the question of whether the car has been sold on because it had lots of problems.

Service history

A more rational factor in a car’s rate of depreciation is the service history. If a car has been serviced on time, every time, it will be worth more. It’s important that the car comes with the documentation to back that up – a fully stamped service book and a stack of old MOT certificates is always reassuring for a potential buyer. On the other hand, if services are missing or the paperwork has been lost, then the car will be worth less.

Fuel economy

As a rule of thumb, used car buyers will be on a tighter motoring budget than someone buying a new car. Running costs, in particular fuel economy, will play a part in their buying decision. So, a car with poor fuel economy is likely to lose more value each year than a similar but more fuel-efficient car.

Warranty

Buyers will be willing to pay a little more for a car that still has some warranty cover. While a three-year new car warranty is common, some brands offer five- or seven-year warranty packages. A longer warranty helps keep the value of a car healthy.

Car tax

The annual cost of car tax (Vehicle Excise Duty) is another factor. A car which costs over £40,000 new will have a big annual car tax supplement to pay compared with one that cost the first owner less than £40,000. The premium is payable for five years, once the original year’s tax runs out. Although it’s not a deal-breaker for all buyers, cars that just avoid this surcharge will lose value slightly slower than one which attracts the higher bill.

ULEZ compliance

All else being equal, cars which are clean enough to enter low emissions zones without a charge are worth more than those which must pay the charge. For example, London’s ULEZ zone is free to enter for petrol cars which meet the Euro 4 standard and diesel cars that meet Euro 6.

Condition

Keeping the car clean inside and out helps slow its loss in value each year. A car that’s largely free of dents and scratches will be worth more than one that has dents and worn or stained upholstery. Be especially careful if you smoke or travel with pets, as bad odours will put off future buyers and make the car harder to sell.

How to slow down the car depreciation

You can’t beat depreciation completely, but you can slow it down. Taking these steps will reduce your car’s loss in value each year.

• Choose the right make and model. Buy a desirable car from a popular brand. Use Carwow reviews to help point you in the right direction.
• Find a great deal. Depreciation percentages are calculated from the list price. So, you can save a big chunk of the first year’s loss in value if you pay less than the RRP. Buy through one of Carwow’s network of trusted dealers and you could save thousands, making depreciation less painful.
• Service the car on time. Don’t skip a service. Always have the car serviced whenever work is due, and make sure you keep the service book stamped and hang on to receipts and MOT certificates.
• Look after the car. There’s more to taking care of your car than having it serviced. Keep the car clean inside and out, and have the alloys repaired if they are scratched and scuffed after a parking mishap.
• Keep the mileage down. The lower a car’s mileage, the smaller its loss in value each year. So, think about using alternative transport when it’s convenient rather than always reaching for the car keys.

Car depreciation FAQs

What is the average yearly depreciation of a car?

For year one, the average depreciation is 15-35%. After the first year, the average yearly depreciation is closer to 10-15%.

Do cars lose value over 10 years?

Once a car is 10 years old or more it may still lose value, but the rate will be very slow. If the car is rare and sought after it may eventually start to increase in value.

What age is best to sell a car?

There’s no hard and fast answer. However, the longer you hang on to a car, the less money it will lose each year in depreciation. Keeping a new car for, say, five years spreads the cost of owning a car more effectively than changing cars once a year.

Are petrol and diesel cars depreciating the fastest?

No. Although petrol and diesel cars won’t be available to buy from new in a few years, many of the fastest depreciating cars are electric. Used car buyers have given electric cars a lukewarm reception so far, although that may change over the next few years.

Looking for an easy way to change your car? Then Carwow is the place to go. You can sell your old car for a great price, and get the best deals on a new one. All through our network of trusted dealers and all from the comfort of your home. Tap the button below to get started today.