Looking to purchase a new car in 2023? It’s a good idea to understand how depreciation will affect your new wheels. With a new car losing value as soon as it is driven out of the showroom, depreciation may influence your choice when deciding on your new car!

Person using a calculator with coins and a key on the table

Over a third, (35%) of UK drivers do not consider depreciation when they are buying a car, according to an Opinium survey of 2000 drivers, commissioned by InsuretheGap.com, an independent provider of GAP Insurance.

Depreciation is the difference between what you pay for a car and the amount you can get back when you sell or trade it in. For example, A new car generally loses approximately 20% of its value when it is driven off the forecourt, and then between 15-20% each year, but different makes, models, and even colours will all hold (and lose) their value differently.

Due to manufacturing issues that have occurred over the past few years relating to availability of semi-conductors used to create in-car computer units, depreciation has slowed down compared to normal rates. There have even been periods of appreciation during this time. This is due to a reduced number of new cars rolling off the production lines, which results in second hand vehicles holding their value due to a lack of newer models being available. However, as we head into 2023, depreciation will once again become a hot topic for drivers, especially those who like to change their cars regularly.

Don’t forget, depreciation also affects the amount of money that car owners can claim from their insurance company, should their car be written off or stolen. If a car is involved in an accident and is written off an insurer will only pay out what it’s currently worth, rather than the amount paid for it, which could leave drivers owing money on outstanding finance agreements for a car that no longer exists.

Here are our Top 10 Factors affecting Depreciation

In addition to a car’s age, where the years of one, three, and eight often signify sharp price drops, other factors that determine a car’s depreciation rate include:

  1. Mileage – the average mileage is around 10,000 per year. The more miles, the less your car is worth. However, while for internal combustion vehicles this is an indication of the wear and tear that its internal parts have been under, for a battery-driven car it will be an indication of how often the battery was charged.

  2. Owners – the more owners a car has, the less it will be worth.

  3. Service history, general condition and keep receipts for big ticket jobs – a full-service history from a manufacturer, approved garage or dealership helps to maintain a car’s value. The upkeep and maintenance of a car will also help retain its value, as dents and scratches can seriously affect its resale price. Always keep the documentation for the big-ticket jobs, like replacing a cambelt, to prove these have been done in alignment with manufacturer’s recommendations.

  4. Colour – generally speaking, the popular selling colours of grey, black, silver, blue and white tend to be the best colours for holding their value. Slightly bolder (red) or off-the-wall colours might not have the same demand, so not have such a high re-sell value.

  5. Desirability – if the vehicle is in high demand or is rare, the more residual value it will hold. If you are lucky enough to purchase a car that is on trend it will suffer much less depreciation, provided it is still on trend when you come to sell it. Similarly, if there is very little demand for your car then you can expect its value to drop dramatically.

  6. Economy – cars with good fuel economy are more desirable, and therefore tend to hold their value better. With electric cars, they will slowly lose their charging capacity over time.

  7. Vehicle tax – buyers looking to run their vehicle on a budget may be put off by high vehicle tax.

  8. Reliability – mechanically reliable cars and those with reasonably priced spare parts are more in demand because they cost less for upkeep in the long term.

  9. Warranty Length – vehicles with a long manufacturer’s warranty attract a higher resale value.

  10. Size - bigger cars tend to depreciate more quickly due to higher running costs.

With the expectation that supply problems and delays in new car production will improve, depreciation will become a hot topic for 2023. Ensure you are prepared, and fully understand depreciation when it comes to purchasing a new vehicle!

GAP Insurance can help bridge the gap between what you paid for a car and the amount you receive from your insurer if you make a claim, in the event your vehicle is written off or stolen. A GAP insurance policy from a specialist insurance provider, like InsuretheGap.com, is significantly cheaper than those offered by car dealerships. Cover is available for vehicles worth up to £150,000.