Guide
Car Depreciation Explained
A car's value tend to go down over time - find out why, how much it can drop by, and what your car is really worth.
Words by: Andrew Woodhouse
Published on 6 October 2023 | 0 min read
Car depreciation is the difference between what your car was worth when you bought it, and how much it would be worth if you were to sell it now.
Over time, a new car decreases in value – so knowing how its value has changed is essential to consider when buying, selling, or insuring it. In this guide, we'll cover various aspects of car depreciation, including calculation methods, rates, and its impact on insurance.
Over time, a new car decreases in value – so knowing how its value has changed is essential to consider when buying, selling, or insuring it. In this guide, we'll cover various aspects of car depreciation, including calculation methods, rates, and its impact on insurance.
How much is my car actually worth?
The best way to find out how much your car is worth is to get a free car valuation.
Our valuations tool is powered by data from millions of vehicles each day, giving a live view of exactly what your car is worth right now. The results consider the vehicle’s age, mileage, factory spec and optional extras, and are 100 per cent data-driven for the most up-to-date valuation we can offer. It's completely free to get your valuation with us, and can be done online in minutes.
Our valuations tool is powered by data from millions of vehicles each day, giving a live view of exactly what your car is worth right now. The results consider the vehicle’s age, mileage, factory spec and optional extras, and are 100 per cent data-driven for the most up-to-date valuation we can offer. It's completely free to get your valuation with us, and can be done online in minutes.
Why do cars depreciate in value?
Cars depreciate due to a number of factors, including wear and tear, mileage, accidents, advancing technology, market demand and economic conditions.
Manufacturer reputation, model year and maintenance history can also impact resale value. While depreciation is inevitable, regular maintenance and careful driving can slow the process.
Manufacturer reputation, model year and maintenance history can also impact resale value. While depreciation is inevitable, regular maintenance and careful driving can slow the process.
What is the depreciation rate of a car?
On average, new cars can lose 20 to 30 per cent of their value in the first year and then around 15 per cent of their value for the next couple of years, normally adding up to 50 per cent or more over three years.
However, new car shortages in recent years mean used cars have been holding their value for longer – and some used cars have even gained value. Even outside of this, the depreciation rate can vary significantly depending on several factors, including the make and model of the car, its age, mileage, and market demand. The best was to find out how much your car is worth is to get an accurate, up-to-date valuation and take it from there.
However, new car shortages in recent years mean used cars have been holding their value for longer – and some used cars have even gained value. Even outside of this, the depreciation rate can vary significantly depending on several factors, including the make and model of the car, its age, mileage, and market demand. The best was to find out how much your car is worth is to get an accurate, up-to-date valuation and take it from there.
Do cars go up in value?
Historically, deprecation was just a fact of life, but over the past couple of years we’ve seen used car prices rise to the point where the car you own could be worth more than you paid for.
Inflation and interest rates play a role in this, as do supply and demand. New car shortages, rising fuel costs and changing consumer demands mean that some cars are worth more than others, and there’s less choice out there. Especially rare or desirable cars like limited edition versions of performance models with a strong following among enthusiasts can also increase in value. Premium brands are often very canny about supplying fewer cars than the market wants to maintain these values, whipping up excitement about the exclusivity to a level where those buying new can often sell on at a profit to those who didn’t secure one themselves. This is generally confined to supercars and other exotica, but can also happen with special editions of hot hatches or final versions of popular models like the old Land Rover Defender.
Inflation and interest rates play a role in this, as do supply and demand. New car shortages, rising fuel costs and changing consumer demands mean that some cars are worth more than others, and there’s less choice out there. Especially rare or desirable cars like limited edition versions of performance models with a strong following among enthusiasts can also increase in value. Premium brands are often very canny about supplying fewer cars than the market wants to maintain these values, whipping up excitement about the exclusivity to a level where those buying new can often sell on at a profit to those who didn’t secure one themselves. This is generally confined to supercars and other exotica, but can also happen with special editions of hot hatches or final versions of popular models like the old Land Rover Defender.
How fast do electric cars depreciate?
Electric cars tend to depreciate differently from traditional internal combustion engine vehicles.
How an electric car holds its values depends on how its battery capacity and technology compare to new releases, how popular the brand is, and how compatible the car is with modern charging infrastructure. You can learn more about electric car valuations here. Battery health is another key factor for electric vehicle depreciation – you can learn about testing battery health here.
How an electric car holds its values depends on how its battery capacity and technology compare to new releases, how popular the brand is, and how compatible the car is with modern charging infrastructure. You can learn more about electric car valuations here. Battery health is another key factor for electric vehicle depreciation – you can learn about testing battery health here.
How does car depreciation affect insurance?
In the event of a total loss, often due to theft or a severe accident, insurance companies typically pay out the actual cash value (ACV) of the car, which is its value after depreciation. They don’t cover the amount you paid for it.
So, if you’ve had your brand-new car for a year or two, the actual cash value will likely be lower than the initial purchase price. If you’re paying for a car on finance you may need to pay the additional coverage, or consider gap insurance to cover the remaining loan balance.
So, if you’ve had your brand-new car for a year or two, the actual cash value will likely be lower than the initial purchase price. If you’re paying for a car on finance you may need to pay the additional coverage, or consider gap insurance to cover the remaining loan balance.
What factors contribute to deprecation?
• We touched on it above, but how a car holds its value depends on a number of factors.
• Mileage is a big one – cars with more miles on the clock are generally worth less, as they’re more likely to have wear and tear. • The number of previous owners is another – more owners is generally seen as increasing the risk of issues. • The brand’s reliability and desirability are key factors for many buyers – a safe and reliable brand is more likely to be in demand, and so hold value for longer, especially if the brand is known to produce cars that last for years. • Size, cost and fuel economy are another obvious area – smaller, more fuel-efficient cars tend to depreciate less while larger, expensive luxury cars will typically cost more to buy new, so their value has further to fall. • CO2 emissions are a factor that’s growing in importance – less polluting cars cost less to tax each year, and cars that produce Euro 6 compliant can drive through Clean Air Zones, including London’s ULEZ, without facing a fine – making them more desirable and so helping them hold their value.
• Mileage is a big one – cars with more miles on the clock are generally worth less, as they’re more likely to have wear and tear. • The number of previous owners is another – more owners is generally seen as increasing the risk of issues. • The brand’s reliability and desirability are key factors for many buyers – a safe and reliable brand is more likely to be in demand, and so hold value for longer, especially if the brand is known to produce cars that last for years. • Size, cost and fuel economy are another obvious area – smaller, more fuel-efficient cars tend to depreciate less while larger, expensive luxury cars will typically cost more to buy new, so their value has further to fall. • CO2 emissions are a factor that’s growing in importance – less polluting cars cost less to tax each year, and cars that produce Euro 6 compliant can drive through Clean Air Zones, including London’s ULEZ, without facing a fine – making them more desirable and so helping them hold their value.
How to slow your car’s depreciation rate
Some of these build on the above, but others might be opportunities you hadn’t considered:
• Safe cars sell, so having a full MOT and service history can help keep the value of your car high. • Keeping your car cleaned and looked after, especially if you smoke or take pets in your car. • Getting repairs done as soon as possible. • Keeping your mileage down, if you can. • Avoiding or being willing to remove modifications (like spoilers or aftermarket bodykits) that could bring the value down. You can’t stop your vehicle losing value, but you could slow down the rate at which it does so, and make as much money as possible when it’s time to sell. For the next steps, check our guide to preparing your car for sale.
• Safe cars sell, so having a full MOT and service history can help keep the value of your car high. • Keeping your car cleaned and looked after, especially if you smoke or take pets in your car. • Getting repairs done as soon as possible. • Keeping your mileage down, if you can. • Avoiding or being willing to remove modifications (like spoilers or aftermarket bodykits) that could bring the value down. You can’t stop your vehicle losing value, but you could slow down the rate at which it does so, and make as much money as possible when it’s time to sell. For the next steps, check our guide to preparing your car for sale.