Car depreciation and what it means when leasing

What is car depreciation and what does it mean when leasing?

Let's be honest – watching your car lose value is about as fun as watching paint dry. But unlike paint drying, car depreciation actually affects your wallet.

So, what exactly is it, and why should you care when you're leasing?

Simply put, depreciation is how much your car's value drops over time. It's the difference between what you paid for it and what it's worth when you decide to part ways.

And here's the kicker: it happens to almost every car.

Sure, there are exceptions – rare classics or that pristine sports car gathering dust in someone's garage.

But for the rest of us driving everyday cars? Depreciation is just part of the deal.

The good news? When you're leasing, depreciation becomes someone else's problem. But we'll get to that in a bit.

What affects car depreciation?

Think of depreciation like ageing – some cars age gracefully, others... don't. Here's what speeds up (or slows down) the process:

Mileage

The more miles on the clock, the less your car's worth. It's simple maths – more driving means more wear, and buyers know it.

Previous owners

Each owner adds uncertainty about how the car's been treated. So the more owners, the more value it loses.

Warranty and service history

A car with warranty left is like finding money in your coat pocket – always a pleasant surprise.

Add a full service history (preferably main dealer), and you've got yourself a winner.

Brand and model

Some brands age like fine wine, others like milk left in the sun. Popular, reliable brands have more buyers queuing up, which keeps values stronger.

Plus, newer designs and the latest number plate always help.

Fuel economy

In today's world, efficiency is king. Smaller, fuel-sipping cars appeal to more buyers, which means better value retention. Fuel guzzlers? Not so much.

Safety tests

Good safety ratings are like a gold star on your school report – they make everyone feel better.

Cars with strong safety credentials hold their value, while those with recalls or known issues don't.

Compliance

With all the environmental regulations flying about (hello, ULEZ), compliant cars are the popular kids at school.

Non-compliant ones? You can’t sit with us.

Condition

This one's obvious – treat your car like rubbish, and it'll be worth about as much. Dents, scratches, and faults all chip away at value.

Average vehicle depreciation figures

Your car will lose most of its value in the first year, then tends to plateau after 10 years where it’s likely to stay at roughly 20% of its original value.

• Year 1: 65 – 85% of original value
• Year 3: 40 – 65% of original value
• Year 5: 30 – 40% of original value
• Year 8 – 10: 20% of original value

Therefore, for all the benefits that come with owning a new car, there is certainly a financial loss involved compared to buying used.

Beyond just the costs outlined here, it is important to understand the true and current value of your car for insurance purposes.

Get this wrong and you could end up overpaying for your insurance.

Which cars depreciate the most?

We know this will be the question on everyone's lips at this point. 

However, it is an ever-changing picture due to social and economic factors that constantly redefine driving standards and trends.

However, in recent years SUV's are shown to maintain their value well due to their growing popularity. This is alongside hatchbacks and those within the luxury, sport and executive bracket which historically depreciate at a slower rate.

Which cars depreciate the least?

Some cars, such as classics, retain their value. If you want a car that doesn't lose much value over time, then you'll want to consider one of these bad boys:

• Land Rover Defender
• Mercedes G-Class
• Porsche Taycan
• Volkswagen Multivan
• Ford Ranger
• Jeep Wrangler
• Audi Q5
• Porsche 911 Cabriolet

Why depreciation matters when leasing

Here's where leasing gets really clever. Instead of buying a car and watching it lose value like sand through your fingers, you simply pay for the depreciation you use.

Think of it this way: if a £30,000 car is worth £18,000 after three years, you're paying for that £12,000 difference over the three years – not the full whack.

This makes driving your dream car much more accessible than buying outright.

The depreciation levels you see on lease deals are calculated upfront, so there are no nasty surprises. Plus, you don't have to deal with the hassle of selling when you're done – just hand the keys back and walk away.

But (there's always a but), your lease payments depend on the car's expected end value, so you'll need to agree on mileage limits from the start.

Go over, and you'll face excess mileage charges. Fair wear and tear is expected, but anything beyond that could cost you when the car goes back.

The bottom line on depreciation and leasing

Car depreciation is one of those unavoidable facts of motoring life – like roadworks on the M25 or the British weather letting you down just when you need it most.

But with leasing, you can turn this inevitable process to your advantage.

Instead of shouldering the full burden of depreciation as an owner, you're only paying for what you use.

It's like renting a holiday home instead of buying one. You get all the benefits, without the long-term financial commitment or the headache of selling up when you're ready to move on.