Like anything you buy, from the moment you complete the transaction, it's likely the value of the goods is going to decrease. Usually this is because the item is no longer "brand new" and instead can be described as "used" or "second-hand" or even "pre-loved". It's no different in the car industry.
Every year millions of cars are sold by their owners and these used cars are bought up in their millions. Buying a car used carries with it a multitude of advantages and disadvantages (e.g. cheaper cost, less time to wait for the car to be delivered but sometimes it may come with a bit of wear and tear from the previous owner).
During the sales process, any car owner will quickly become familiar with the term "depreciation". If you're selling your car used, you need to figure out how much to sell for. Unless the vehicle is a rare collectible, it's unlikely to retain 100% of its original value. This is where depreciation comes in.
Car depreciation is the difference between the amount you paid for the car at the time of purchase and how much it's now worth. Some places prefer the term "residual value" and rather than saying what the car is valued at, instead provide a % of the car's original worth.
There is no fixed rate of depreciation as every car and manufacturer is different. Some cars hold their value much better, some lose more than half of their value in less than 3 years. However, there's a general agreement in the car industry that a new car is likely to lose between 15%-35% of its value in the first year and around 50% after 3 years. How much it depreciates by, depends on a number of factors.
There are a number of key factors that are likely to cause your car to depreciate more or less compared to others. These are:
Perhaps the most important factor in calculating car depreciation, mileage is quite simply the number of miles your vehicle has travelled. The larger the mileage, the more likely the car is in need of repair or maintenance. The lower the mileage, the better deal the car is as it's not likely to quite need all the little maintenance work and changes that you would expect.
The manufacturer is incredibly important when it comes to depreciation. Brands such as Mazda, KIA and Skoda carry reputations of being highly reliable and reputable car manufacturers. As such, they also carry higher than average residual values - meaning they depreciate slower. Meanwhile, vehicles that are regularly found wanting on reliability tests such as Jeep and Land Rover, depreciative much quicker.
However, it's not just about reliability. If the vehicle is likely to be high demand in the coming years, then many dealerships may improve the vehicles depreciation score. If they feel that the vehicle is likely to sell well, even as used, in the future then this can have a positive effect on the value.
The condition of the car is vitally important because unsurprisingly, the more well-kept, tidy and undamaged the vehicle is, the easier it is to sell. Alternatively, if you try to part-exchange a vehicle that is badly damaged and requires work to get it "back up to scratch", then you're likely to be offered less money for it.
As previously mentioned, the less owners the car has the better. Probability dictates that if there's been more owners, there's been many different driving styles and more damage to the insides of the car that we can't see.
As per previous owners, the service history of the vehicle also plays an important part in the calculation. A vehicle that has been regularly checked and maintained by the licenced manufacturer garage means there's more reassurance and expectation that the vehicle is in good shape. Cars that don't have a full service history can cause concern and hesitancy as the buyer may not be able to be assured that the work carried out was in fact correct or to a high standard.
All these factors are taken into account when you try sell your car. Likewise, if you're buying a used car you should be asking questions about each of these to make sure you're getting a good deal.
