Protecting the Investment Made in a Used Car

As soon as a car is bought its value starts to drop. Depreciation – the term used for the decrease in a car’s worth over time – is the greatest hidden cost of motoring as it only becomes apparent when the time comes to sell a car. Yet certain steps can be taken to minimise the impact of depreciation and ensure a car is worth more for longer.

Luckily for those buying a used car, the heaviest depreciation of a car’s value occurs in the first three years of its life. The biggest drop in value a car suffers is the initial one when it is driven off the forecourt by its first owner. For this reason, savvy buyers will give serious consideration to a nearly new car. Franchised dealers usually have plenty of these low-mileage cars to choose from and most will come with a guarantee, warranty and full service history.

Depreciation is often measured as a percentage of a car’s value after three years or 36,000 miles, compared to its price when new. If a car depreciates heavily, it may be worth only 30 per cent of its original value after three years, and even a car with low depreciation can expect to lose at least 25 per cent of its initial worth.

Buy the Best

The best way to beat depreciation when buying a used car is to buy the best car in its class, as it is the one that will continue to be in demand for the foreseeable future. Highly sought after and rare cars tend to depreciate at a slower rate too, but be aware that a car in vogue may lose value quickly if the trend changes.

Expensive cars produced by manufacturers not known for building luxury cars are often among the fastest to depreciate. While these cars may be big on performance and specification, there is a limited market for them and so it will be more difficult to find a buyer willing to pay an amount close to the original investment when the time comes to sell it on.

Choosing a diesel-powered car instead of a petrol-powered one may offer a buyer some protection. Diesel cars have lower running costs, which has led to an increase in demand as fuel prices rocket. Petrol engines mean expensive maintenance bills and higher emissions will put off environmentally-friendly drivers.

Newer Models Retain Value

A newer model in the showrooms will retain its value longer than an older model about to go out of production. Sometimes, however, a last of the line model will carry a much-reduced price tag to account for the fact. In this case, the older car may depreciate less, as the less paid for the car in the first place, the less there is to lose.

By keeping a car for a long time it is possible to reduce the amount of depreciation suffered per year, but unless a buyer is able to pick out the next collectable classic – the ultra-rare car that will one day increase in value – then depreciation is a fact of life.

As well as taking steps to guard against depreciation, a buyer should take protection against accidents, fire and theft by getting appropriate insurance cover. For additional security it is worth fitting a car alarm if one is not provided by the manufacturer as standard.