Car Depreciation and the Maths Behind Leasing
Car depreciation is a certainty when you purchase a brand new vehicle. From the moment you drive it off the forecourt the value of your car will have dropped.
With car depreciation being the largest expense when owning a new car, we thought we’d have a look at how this compares financially to leasing your next vehicle.
Car depreciation is not simple. There are lots of factors that affect the residual value of a vehicle including mileage, condition and it also varies significantly between different makes and models. Some cars depreciate faster than others but in general more popular cars that are easier to sell as used vehicles will do better.
At the moment SUVs and 4X4s are doing well at retaining value because of their desirability in the used car market. Another factor affecting value is fuel-efficiency and cars that are cheaper to run do well in the used car market. Over recent times petrol-electric vehicles have held onto their values well, but pure electric vehicles tend to have worse residual values possibly because of the government grants available when purchasing from new. Other cars that hold their value better are luxury cars and executive cars and of course sports cars. Car value is also affected by model replacement cycles so a model shortly to be replaced by a newer version may well lose its value more quickly than its replacement.
Regardless of this it is difficult to predict which cars will depreciate slowest and how the market will look in a few years time when you come to sell your car.
So firstly, let’s look at purchasing your vehicle
The AA advises that a new car loses around 40% of its value in year one and over a course of 3 years and 10,000 miles per annum the car will have lost around 60% of it’s original value. So we used an example of a *Ford Focus with a price of just over £22k. Over a 3 year period the car will have decreased in value to around £8,800. That means a total depreciation cost to you the buyer of £13,200.
Now if we look at leasing the same vehicle
We looked at leasing the same Ford Focus and we would expect your payments to be an average of £220 per month or £7,920 over a 3 year period. This indicates a considerable saving over 3 years compared to the estimated £13,200 depreciation loss on a purchase.
Leasing can be an effective way of managing the risk of owning a depreciating asset like a new car. It is however essential to get the right contract to suit you. That’s where we come in, guiding you through the process to ensure you get the right contract for your needs.
So what are you waiting for, get in touch and talk to us about leasing your next new vehicle.
*Calculations were based on Ford Focus Hatchback EcoBoost 140 ST-Line Navigation 5 door Price was £22114.99 and monthly rental £220.47. Price correct as at 28/3/2018