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Tony Levene is a renowned financial journalist, who has previously been a columnist for Guardian Money. He has written several books, including 'Investing for Dummies' and won the ABI Lifetime Achievement award and the Headline Money award.


Brand new cars, a great investment or a depreciation nightmare?

August is a good month to look for a new car. The autumn's new models are due soon, and the number plate changes on September 1. So dealers are eager to sell their old stock at lower prices. And that means a flow of still young second hand - or ‘pre-owned’ - cars as well.

The new or second hand decision used to be focused on reliability as well as budget but these days a three to five year old vehicle should still have a long mechanical life ahead.

Some used cars may still be in warranty and provided you organise an AA or RAC inspection, or buy from a major dealer, you would be very unlucky to find the clutch has collapsed or the brakes are broken. Insurance on a three to five year old car should be lower than on the new model and you should also be able to avoid the extra first year road tax levied on cars with higher
C02 emissions.

Quotation MarksDepreciation on a new car can be horrendous – values start to plunge the moment it leaves the showroom.Quotation Marks

So now the choice is largely down to finances. Prices of some used car models have dropped by as much as 20% over the last year, according to price guides.

But as well as paying less to start with, depreciation - the difference between the price paid and what you will receive when you eventually sell it - is far less painful on second hand cars.

Depreciation on a new car can be horrendous – values start to plunge the moment it leaves the showroom.

According to recent figures from Which?, a new £20,000 car is on average worth just £8,000 three years later. This works out at around £80 a week, often more than all other motor costs put together. A lower mileage and polishing it every day won't make that much difference.

You can't avoid depreciation but you can lessen its impact. Here are
some tips:

  • Smaller cars tend to hold value better. Subsequent buyers will often look for an economical second car rather than a luxury gas guzzler. A recent survey by price guide Parkers found some cars lost as much as a third after twelve months – these big losers include prestige models such as Maybach, Lamborgini, Bentley, Rolls-Royce and Ferrari.
  • Don't pay list price. Depreciation percentages are calculated on the official price so the pain is lessened if you can haggle – many dealers advertise £20,000 cars at £16,000 or £17,000 and may take less.
  • Models about to be superseded and ‘last year's fashions’ will depreciate faster so check before you buy. These cars should come with big discounts to counterbalance the likely high depreciation.
  • Cars with long warranties - five to seven years or longer - hold their value better. Equally, some makes have a reputation for reliability, low maintenance costs and reasonably priced spares.
  • Extras such as alloy wheels or leather upholstery count for little in the second hand market. So the additional amounts paid will disappear.
  • Nearly new cars such as demonstration or ‘delivery-mileage only’ models can often be better value unless you really require freshly minted newness.
  • Electric and hybrid cars may pollute less but have uncertain residual values. Replacing batteries after six to eight years is likely to be pricey.

Used cars depreciate but less in cash terms. While a three year old £8,000 car could fall to £4,000 over three years, that's only around £25 a week.

Finally, if you buy a car – new or ‘pre-owned’ - watch out for the scams described below if you choose to advertise your old one online or in print.

  1. You could be phoned or emailed by a website that claims it has a cash buyer for your exact car. All you have to do is to register for £100 to £150.
  2. Beware of emails offering you more than you want for your car. The claim is that there's an overseas buyer and you'll even be sent a ‘banker's draft’. But first, you’ll have to pay upfront ‘shipping costs’ of a few thousand pounds.

In both cases, needless to say, there is no buyer and any money you’ve put in will never be seen again.

For further tips and advice, please see our quick guide (PDF).

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