Over a quarter or 28% of UK drivers do not consider depreciation when they are buying a car, despite having a full understanding of it.
One in five think that all cars depreciate at the same rate (men 16% and women 23%). Younger drivers under 35s (34%) are also twice as likely to think that all cars depreciate at the same rate as over 55s (14%).
Depreciation is the difference between what you paid for a car and the amount you can get back when you sell or trade it in. A new car loses approximately 20% of its value when it is driven off the showroom forecourt, and cars lose between 15 – 20% of their value each year, but, different makes, models and even colours will all hold or lose their value differently.
However, it seems it is often ignored or forgotten about when people are purchasing a car, even though for car owners who like to change their car regularly the financial effect can be significant.
When 2000 UK drivers were asked about depreciation in an Opinium survey commissioned by InsuretheGap.com, an independent provider of Guaranteed Asset Protection, one in ten (10%) drivers say that depreciation is not something they think about.
Older drivers are more likely to think about depreciation than younger drivers when they are buying a car. Almost half of drivers (44%) in the survey say they keep their car until it’s run into the ground, which explains why they do not consider depreciation, men 40% and women 48%.
“We’re seeing some great deals in the new car market, which could mean second-hand cars lose their value even quicker if more buyers than usual choose new,” said Ben Wooltorton, Chief Operating Officer at InsuretheGap.com .
“However whatever car you buy, one thing is certain, as soon as you drive off its value starts to depreciate. If you normally look to trade your car in after a few years, it’s definitely worth doing some research on whether the make / model you have in mind tends to drop like a stone or holds it value.”
He added, “Depreciating factors that affect the value of a vehicle regardless of its make and model include things like mileage, number of previous owners, service history, general condition and colour. Reliability, safety, and reputation tend to apply to specific makes or manufacturers and typically do not change over the course of ownership.”
Depreciation can also affect the amount of money that car owners can claim from their insurance company, in the event that their car is written off or stolen.
“If a two-year old car is involved in accident and is written off an insurer will only pay out on its current market value, rather than the original price,” said Ben. “This could leave car owners still owing money on outstanding finance agreements for a car that no longer exists.”
Factors influencing depreciation include mileage, ownership, servicing, colour and desirability, while economy, tax, reliability, warranty and even size can impact on prices.