What is depreciation?
Depreciation is the loss in value that happens as a car gets older, gains mileage and becomes less desirable to buyers.
Depreciation is the amount of value a car loses over time. If you buy a car for £20,000 and later sell it for £14,000, the £6,000 difference is depreciation.
For many drivers, depreciation is the biggest hidden cost of car ownership. Fuel and insurance feel more visible because you pay them regularly, but the value lost when you sell or part-exchange the car can be much larger.
Why depreciation matters
Depreciation matters because it turns the purchase price into a real ownership cost. A car may look affordable when you buy it, but the real cost is often the difference between what you paid and what it is worth later.
This is why a cheaper-to-fuel car is not always the cheapest car to own. A vehicle with low running costs can still be expensive overall if it loses value quickly.
Estimate how much value a car may lose
Use purchase price, current value and forecast rate to estimate depreciation over time.
How depreciation works
Depreciation is usually steepest in the early years, then slows as the car gets older. New cars often lose value faster because buyers are paying for a brand-new vehicle, warranty, latest registration and dealer margin.
Depreciation = purchase price - current value
Depreciation percentage = depreciation ÷ purchase price × 100
Average annual depreciation = depreciation ÷ years ownedThe calculation is simple. The difficult part is choosing a realistic future value, because used-car prices can change with demand, mileage, condition, fuel type and wider market conditions.
What affects car depreciation?
Two similar cars can depreciate very differently. The brand, model, mileage and condition all matter, but so does whether buyers still want that type of car when you come to sell it.
| Factor | How it can affect value | What to watch |
|---|---|---|
| Age | Most cars lose value as they get older. | The first few years are often the steepest. |
| Mileage | Higher mileage usually reduces resale value. | Compare mileage against typical annual use. |
| Condition | Damage, poor servicing and worn interiors reduce value. | Keep service history and repair records. |
| Fuel type | Demand for petrol, diesel, hybrid and electric cars can shift. | Running costs, clean-air rules and charging access can change buyer demand. |
| Specification | Popular trims and options can hold value better. | A rare option is not always a valuable option. |
| Market demand | Used-car values rise or fall when supply and demand changes. | Do not assume a fixed depreciation rate will always hold. |
Worked example
Here is a simple example showing how depreciation turns into a monthly ownership cost.
£24,000 - £15,000 = £9,000 depreciation
£9,000 ÷ 36 months = £250 per monthIn this example, the car has effectively cost £250 per month in lost value before adding fuel, insurance, tax, servicing, repairs or finance interest.
New cars vs used cars
New cars often suffer the sharpest early depreciation. Used cars may lose value more slowly, but they can have higher maintenance risk, fewer warranty protections and more mileage already on the clock.
- New car: usually higher purchase price and steeper early depreciation, but newer features and warranty cover.
- Nearly new car: may avoid some of the first drop while still feeling modern.
- Older used car: lower purchase price and often slower depreciation, but repairs can become a bigger part of the cost.
- Financed car: depreciation matters because the car's value may affect equity, settlement position and part-exchange options.
Depreciation and total ownership cost
Depreciation should be viewed alongside fuel, charging, insurance, servicing, vehicle tax and finance costs. Looking only at petrol, diesel or EV charging can give a misleading picture.
Compare the full cost of running a car
See how depreciation fits with fuel, charging, VED and other annual costs.
If two cars cost the same to fuel but one loses £3,000 more in value over the same period, the higher-depreciation car is more expensive in real terms.
Common mistakes
FAQs
Is depreciation a cash cost?
Not in the same way as fuel or insurance. You usually feel depreciation when you sell, part-exchange or refinance the car, because the car is worth less than you paid.
Is car depreciation always highest in the first year?
Often, but not always. New cars commonly lose value quickly at first, but used-car market conditions, mileage, demand and vehicle type can change the pattern.
Can depreciation be avoided?
You cannot remove depreciation completely, but you can reduce the risk by buying at the right price, choosing a car with strong demand, keeping mileage sensible and maintaining good condition.
Does depreciation affect electric cars?
Yes. Electric cars can depreciate like any other vehicle. Battery condition, charging speed, range, technology changes and used-EV demand can all affect resale value.