The Complete Guide to Car Depreciation | LeaseCar UK

Depreciation

Vehicle depreciation is simply the difference between the amount you spend when you buy a car and the amount you'd get when you sell or trade it in. It's quite often overlooked but it really shouldn't be, this is because it's the second biggest cost in motoring after purchasing fuel.

There's an old saying that as soon as you drive a car out of a dealership you will lose thousands of pounds. This is because its value will instantly plummet, and while this might be a slight over exaggeration, it really does ring true, because it very easily sums up what car depreciation is.

In leasing terms, you might hear depreciation referred to as residual value, this is what the vehicle is worth at the end of the leasing period, with car depreciation fully taken into account by the company you have leased the vehicle for.

How does car depreciation work?

Typically, a new car will lose 50-60 per cent of its value after three years, assuming that it's traveling at the average rate of around 10,000 miles per year. In terms of car leasing, this then means that the average new car will have a residual value of 40 per cent of its original price after a three-year lease period, assuming it travels 10,000 miles per year.

Clearly though, this is just an assessment or an overview of car depreciation, and there are many more things to factor in which all play a part, including: the number of miles you drive and the condition of the vehicle when you return it to the leasing company. Car depreciation can also be influenced by things like the model's replacement cycle - with brand new models likely to depreciate less rapidly than a model which will be replaced by a newer version, as well as the overall demand for the vehicle itself.

Additionally, the rate of the car's depreciation will usually slow down based on its age. The reason people joke about the car's value dropping as soon as it's driven off the car forecourt is because its value will typically slump by 40 per cent in the first year alone. And by three years, it becomes 60 per cent as stated earlier on this page.

How car depreciation differs between vehicles

It's easy to make rough estimate of how much a vehicles value will depreciate over period of time. All you need to do is work out how much it would be worth by considering that it will lose 60 per cent of its value over three years. However, you need to bear in mind that this percentage may be similar between vehicles, a lot depends on how much the car was worth in the first place.

It's easy to understand when you put it like the following; If you buy a car for