Depreciation: What does it mean?

The loss in a vehicle's value over time. Depreciation is calculated as the difference between the purchase price and projected residual value at the end of the lease term.

Depreciation: The long answer

Depreciation refers to the decrease in value that occurs over time for a car. In the context of UK drivers, it is important to understand how depreciation affects the overall cost of owning a vehicle.

When you purchase a new car, it starts to lose value immediately, and this depreciation continues throughout its ownership. The rate of depreciation can vary depending on factors such as the make and model of the car, its age, mileage, condition, and market demand.

Understanding depreciation is crucial for UK drivers as it directly impacts the financial aspects of car ownership. As a car depreciates, its resale value decreases, meaning you may not be able to sell it for the same price you bought it. This can result in a financial loss when it comes time to sell or trade-in your vehicle.

Depreciation also affects car insurance premiums. As the value of your car decreases, the insurance company may adjust the premium accordingly. It's important to consider this when budgeting for insurance costs.

Furthermore, depreciation influences the decision of whether to buy a new or used car. New cars typically experience a higher rate of depreciation in their first few years, while used cars have already undergone significant depreciation. This knowledge can help UK drivers make informed choices based on their budget and preferences.

To minimise the impact of depreciation, some drivers opt for cars with better resale values or choose to lease instead of buying. Regular maintenance, servicing, and keeping the car in good condition can also help slow down the depreciation process.