One of the key considerations when you are buying a new car or van is how well it will retain its value. This is also known as its ‘Depreciation Rate’

Not needing to worry over how much value a new vehicle will lose is also one of the key benefits of choosing to lease a brand-new vehicle rather than buy one.

What is depreciation?

In terms of car valuations, depreciation is the difference between the amount you spend when you buy a vehicle and the amount you receive when you sell it (otherwise known as its ‘residual value’). A new vehicle typically loses value as soon as you drive it away from the sales forecourt. A more expensive car will put more strain on your bank balance in the first instance, but you may find that it keeps its value a lot better than a cheaper alternative.

What does ‘residual value’ mean?

The residual value of a vehicle is how much it is expected to be worth by the time it comes to be replaced. The AA predicts that on average, a new car running at 10,000 miles a year will have a residual value of around 40% of its new price after 3 years.

Does depreciation mean it is better to lease?

Investing in new cars, which often come with warranties or optional service packages can alleviate the impending pressure of the increased maintenance costs associated with second-hand cars
However, if you take pride in owning a brand-new vehicle and upgrade every two years or so, the typically high rate of depreciation could well be burning a hole in your pocket. There is also the high initial OTR (‘on the road’) cost to consider in the first place

Leasing a car would allow management of depreciation costs and minimise the risk of big repair bills

As part of a leasing contract, you pay a fixed monthly cost, which can include (or be upgraded to include) servicing and repairs. If you cover lots of miles and replace your car frequently, leasing often works out cheaper compared to buying a brand new car outright.

If you are part of a business that runs a fleet of cars, leasing can also offer you the opportunity to protect capital against the cost of depreciation. It also offers a vastly reduced initial rental when compared with OTR prices, and tax benefits too. An example of this is that VAT-registered businesses can claim back 50% of the VAT on the finance element of a contract hire agreement.

What influences depreciation values?

What makes depreciation such a complicated matter is that not all vehicles lose their value at the same rate. A huge range of factors influence the speed at which a vehicle depreciates, including:

Age:
The newer a car is, the faster it depreciates. Once cars reach around five years old the depreciation rate slows down. After around eight years the vehicle will have depreciated almost as much as it is ever likely to. There are other factors to take into consideration with older vehicles. Despite the fact they may no longer be depreciating as quickly, their value will be damaged considerably by the likelihood of high repair bills. In some cases, popular or classic cars may even bounce back in price further down the line.

Fuel Efficiency:
One of the most prominent considerations when buying a new car, whether it is new or second hand, is how fuel-efficient it is. More people are interested in using a car that is cheaper to run so there is increased demand for vehicles that boast high rates of fuel economy. This high demand drives up prices and slows down depreciation rates.
We offer contracts on electric vehicles, hybrids, and vehicles with less than 95g/km CO2 emissions.

New model releases:
Every so often, car manufacturers release new models of their vehicles. A brand-new model is likely to depreciate slower than a model that is soon to be replaced by an updated version.

Demand and supply:
The more in demand a vehicle is, the slower it will depreciate. Demand is influenced by an almost endless list of factors, including exclusivity, limited edition runs, fuel economy, reputation, and the popularity of certain manufacturers.

Mileage:
The more miles a car has done, the more its value depreciates. A car that is three years old and has only done 15,000 miles will be worth more than one of the same age, make and model that has done 60,000. The more miles a car has done the more work all the vehicles various components have had to do, and so the closer they are to needing to be repaired or replaced.

Condition of the vehicle:
If your car is in a sound, clean condition, it stands to reason that it will reach a higher sale price than one of the same age that is covered in dents, scratches, and rust.

Ways to minimize depreciation

Any depreciation values given are only ever going to be estimations of what your vehicle is likely to be worth in the future. If you want to help make your car keep as much of its value for as long as possible, there are a few simple things you can do:

Choose colours carefully:
Stick with colours that are always popular like silver, black and blues as opposed to whatever shades are popular at that time

Choose a fuel-efficient model:
It is important to choose a vehicle that is going to give you good fuel efficiency, especially with the latest government regulations impacting costs on new vehicles

Choose a new and popular model:
As we've discussed before, the higher the demand, the higher the price the vehicle will achieve

Look after your vehicle properly

Once you get your hands on your new vehicle, making sure you look after it properly can also help slow depreciation down.

• Keep the car clean and well maintained – regularly wash it, tackle any rust spots early, and regularly check things like oil levels, water levels and tyre pressures
• Reduce unnecessary journeys – keeping your mileage down will slow depreciation
• Service your car according to the manufacturer's schedule and keep a record – dealership stamps in a vehicle's service history book go a long way to assuring people the vehicle has been well looked after
• Carry out any repairs quickly and properly – again, being able to demonstrate you have looked after your car properly is essential

Choosing a business or personal contract hire deal will mean you don’t have to worry about how much the car or van will depreciate.

If you want to lease a vehicle from us, search our website of brand new vehicles or call us on 01942 311508 for quotes and options.