Among the most significant ongoing costs for motorists is that of depreciation. As your car ages, its value will steadily decline. That said, in some cases, the decline will be anything but steady!
If you want to keep the drain on your finances to a minimum, it’s worth thinking about depreciation ahead of time. Let’s run through a few essential points on how best to look at the problem and minimise its impact.
What is Depreciation?
Simply defined, depreciation is the difference between the amount you paid for a car and the amount that you’re selling it. In some cases, it’s actually more of an important consideration than things like fuel economy. You might spend £1,000 less on fuel over a few years, only to have those savings wiped out by depreciation over the same period.
How can we Minimise it?
Now that we understand what depreciation is, let’s think about what we might do to minimise its effects.
Choice of Car
Certain cars hold their value more effectively than others. SUVs and high-end sports cars tend to retain a greater proportion of their initial price – which might justify you opting for one if you know you’re going to be selling in a few years’ time. Naturally, we only have this information for vehicles whose price has already depreciated. When we’re projecting into the future, the past is an imperfect guide – but that’s better than no guide at all.
New or Used?
The most acute depreciation occurs immediately after the purchase of a new car. Thus, if you opt for something that’s ‘nearly new’, you stand to avoid much of this problem.
Invest in Gap Insurance
Guaranteed Asset Protection means that your car is protected for its full value as new, rather than just its resale value. This will in turn prevent you from going into negative equity should you write your car off.
If you modify your vehicle, you’ll effect its resale value. This applies especially to classic cars whose value lies in their historic or aesthetic appeal.
If you’re leasing, then the depreciation of the car should be factored into the amount you pay every month. Therefore, it’s something that you’ll actually benefit from over time.
Choice of Trim
The optional extras you pick will have an effect on your car’s resale value. If you go for an obscure setup that’s matched to your needs, then you might have difficulty moving the car on to someone new. For example, an executive car with an unusual paint-job, or which lacks features like satnav, might struggle in the open market.
Sell before Replacement Model is Released
You’ll see another sharp decline in value when the model is succeeded by a new one. Pay attention to the release calendar, and make sure you’re aware of when a new model is likely to be unveiled, and make sure that your car is sold beforehand.