Car depreciation is the difference between the value of your car when you first bought it and how much it’s worth when you sell it. With brand new cars, it’s well known that it drops in value the second you drive off the forecourt.
The supply and demand of a particular make or model can impact how much it depreciates. The majority of cars take their biggest hit during their first year. This quick rate of depreciation tends to slow down after 3 years, but it makes sense to consider it as a factor when you start shopping for a new car.
In an ideal world, the car you buy would keep its value for as long as possible but most vehicles are sold for a fraction of their original price.
When you take out car insurance, your car is protected against its current market value, not the amount you paid for it. This means your payout if you were involved in an accident could be much less than you originally paid for the car.
Because car depreciation is not on a scale and varies significantly from model to model, there is no set way that depreciation will affect your insurance. Whether you buy new, used or lease a vehicle, they all depreciate at different rates.
While some cars are known to lose their value quickly, there are a few models out there that hold their value longer than others. Generally, it’s thought that SUVs keep their value better than other models from the same manufacturer.
Below are some of the models that tend to have the lowest rates of depreciation*:
|Model||Original Price||3 year residual value||Value retained|
|Toyota Prius 1.8 VVTi Active||£24,255||£24,255||£15,250|
Many rare sports cars and high-end electric vehicles hold their value, as they become collectors’ items. Tesla cars have a reputation for holding on to their value and dominate the electric vehicle market as one of the highest-value brands.
*Information correct as of September, 2019.
A study by What Car? found that electric vehicles on average retain 47% of their value. But, as technology rapidly improves, it’s guaranteed new models with even more impressive technology will begin to flood the market, affecting the depreciation of previous models.
However, there’s also a strong argument that the increase in makes and models will lead to an increase in demand, meaning the next generation of electric cars will hold on to their value for longer.
As the UK government continues to introduce measures to limit diesel vehicles and encourage electric vehicles, the demand should only increase further - making an electric car a smart financial investment. For more information about the benefits of an electric car, real all about the pros and cons in our article, should I buy an electric car?