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Play the depreciation game and win

Fri, 07 Aug 2009

What’s the biggest cost in running a car? Fuel? Servicing? Insurance? Nope. It’s depreciation.


 


From the moment it rolls out of the showroom, a new car is losing value. By the time that new-car smell has faded it’s already worth hundreds – perhaps thousands – of pounds less than the first owner paid.


 


The new car buyer’s enemy is the used car buyer’s friend. Pick up a car that’s been on the road for a year and you’ll pay around two-thirds what it cost a year ago. The exact figure varies from model to model, but that means a £30,000 car could be worth just £20,000 by its first birthday. So, would you like to have your name at the top of the logbook, or would you rather let someone else run your car in for you and be thousands of pounds better off? Put like that, choosing to buy a second-hand car is not a difficult decision.


 


Should I buy a nearly new car?


 


The phrase ‘nearly new’ describes a car around one-year old. As long as it has been looked after, a good nearly new car will look and feel just like a new one, only it will cost much, much less. Since most new cars now come with three-year warranties, it will still have a couple of years’ cover left to run, provided it has been serviced on time and to the manufacturer’s requirements.


 


An older used car will be cheaper still, though. Depreciation doesn’t stop on a car’s first birthday, although the rate at which the car loses value is slower in year two than year one. Go for a three-year-old car and you could pay between a third and a half of the original new price.


 


Take the example of a Ford Mondeo for sale at online car retailer Autoquake.com. The 06-plate 2.0 TDCi Ghia 5dr is for sale at £7181. Three years ago the list price was £19,300. The warranty will be at an end, but there are plenty of firms which will sell you mechanical breakdown insurance for a few hundred pounds a year.


 


After year three the rate at which a car loses value slows down further, so this is a good time to buy and really make the most of your budget.


 


Can I buy new and beat depreciation?


 


It can sometimes be done. Once in a while, a new car comes along which is in strong demand and limited supply. Order early, be one of the first to own it, and sell after six months, and you might just enjoy depreciation-free motoring.


 


 


That’s the theory. In practice, second-guessing how the car market is going to move is tough, and these depreciation-busting cars are usually prestige models which cost a small fortune to buy. For most of us, the risk of getting it wrong outweighs the benefits of getting it right. It’s better to accept that depreciation is a fact of four-wheeled life, and take steps to make sure it works for you rather than against you.

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