Why a new car loses a third of its value in a year

Why a new car loses a third of its value in a year

There's something exciting about buying a brand new car – the smell, the spotless paintwork. Sadly though, you've probably never lost as much money so quickly as the moment you roll that car out of the garage showroom.

The new '66' number plates launched on 1 September, and with them an industry expectation that there will a boost in new car sales. Yet, despite all the low-rate opportunities to borrow money for a car, you could be better off buying second hand. The reason? Depreciation.

What is car depreciation?

That's not a word you'll use very often, probably never in normal conversation, so what does it mean? Well, unless something is a collectable, pretty much everything you buy will drop in value over time – and this is called depreciation.

Your brand new car suffers from this more than almost anything else. In three years, some models could be worth 50% less than you paid, with the biggest drop happening the moment you start driving the vehicle. Typically, the value will be 15-35% less in the first year.

Considering a car could be one of the most expensive purchases you make, that's a lot of money you'll be losing.

It's difficult to nail down one single factor that has the biggest affect, but the car's reliability, colour, size, fuel economy and the number of miles you've driven can all make one car lose its value quicker than another.

How to beat car depreciation

If you are buying a new car, here are seven ways you can beat depreciation – or at least limit its impact.

Research before you buy

Some models will hold their value better, increasing your resale price. Look for good fuel economy and other running costs.

Buy a second hand car

A car that's nearly new or hardly used won't be too different to a brand spanking new one, but will be cheaper.

Chose a popular model and colour

This will really help you resell the car. A funky yellow or extra trims might look great to you, but there are probably fewer people out there looking for the same thing.

Time when you buy and sell

If you can buy when sales are slow you might be able to get a discount. Likewise, selling a convertible in the winter won't get as much money as when the sun is shining.

Sell it before it's replaced

New models will mean your car will drop in value, so keep an eye on motoring magazines and websites.

Take good care of your car

Again, buyers will want to know the car will keep going once they take it off your hands. Keep track of services and MOTs too.

This article is provided by the Money Advice Service.

The cheapest cars to insure
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The cheapest cars to insure

Price new: £5,995

Dacia has made a big impact in the UK with its line of affordable motors.
The Sandero is the foundation of the brand's offering and is famed for being the UK's cheapest car.

With a group two insurance classification it's also one of the cheapest cars to insure right now.
The entry level Access model is sparsely equipped, but it has a practical interior, big boot and low running costs.

Price new: £8,060

The Seat Mii is a small city car which Auto Express praises for its spacious interior, good build quality and supple ride.

All models are in insurance group one, bar the group two Sport version.
The Mii is available in three-door or five-door styles, but both measure just 3.5 metres, making it perfect for getting around town.

Price new: £8,090

The Skoda Citigo was crowned Auto Express Best City Car 2013.

The magazine praised its low running costs and practicality as well as its grown up driving experience.
Like its Mii stable mate the Citigo has group one insurance in all apart from its top specification model, making it one of the cheapest cars to insure.

Price new: £8,265

The third of the Volkswagen's group of three city cars to make the list is the Up!

Auto Express says the Up! was 'born to rule' city streets with its small dimensions and lightweight body.
There's three versions of this fun city car; Take Up! has a group one rating as does Move Up! while the higher spec High Up! gets a group two classification.

Price new: £8,345

The Hyundai i10 is another car which can get you a cheap insurance quote thanks to a group one insurance rating across all the 1.0-litre petrol models.

Auto Express says the new 2014 i10 offers big car features in a small package. And for £8,345 you also get Hyundai's five-year warranty and roadside assistance package.

Price new: £8,995

Vauxhall has managed to squeeze one of its full sized Corsas into insurance group two.
Auto Express says the 1.0-litre ecoFlex model has the lowest insurance costs of any mainstream supermini.

The eye-catching design, solid interior and big-car features make it an appealing buy for drivers.

Price new: £9,575

The Smart car caused a bit of a stir when it first appeared thanks to its dinky dimensions and bold two-seat layout, making it very useful for driving about town and absurdly easy to park.

The Smart ForTwo is the latest incarnation, which keeps to the same formula; it still has only two seats and is one of the smallest cars on the road measuring just 2.5 metres long,
The entry level 0.8- and 1.0-litre models qualify for group two insurance.

Price new: £11,810

The Peugeot Partner Tepee 1.6 VTi is the passenger version of the Partner van and according to Auto Express easily the most spacious new car that currently qualifies for a group two insurance rating.

It's got a boxy shape that provides plenty of room and has sliding doors which make it a very practical and flexible family car.

If you're after something smaller the Peugeot Bipper Tepee, which is the smallest of Peugeot's family of Tepee MPVs, also gets a group two insurance rating.


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