Depreciation explained: the biggest cost of a new car, and the one nobody counts

Running costs are visible. You pay them at a pump or a charger, in amounts small enough to notice. Depreciation is invisible. Nothing leaves your account, no bill arrives, and then one day you sell the car and find out what the last four years cost.

This catalogue puts depreciation between 8 and 19 per cent a year, with a median of 13. Those are the project’s estimates rather than measured resale results, so treat them as a ranking rather than a forecast. The ranking is the useful part: the same €34,000 spent on two different cars can cost you around €10,000 more or less over five years, before you have bought a single litre of anything.

Depreciation compounds on what the car is worth now, not on what you paid. A steady 13 per cent a year is not 13 per cent of €34,000 taken five times. It is 0.87 multiplied by itself, once a year. Over five years that comes to 0.498 — a car on the median rate keeps almost exactly half its value.

Put the median car’s numbers next to each other. Depreciation runs at €284 a month across those five years. The catalogue’s median running cost is €195 a month. Depreciation is not one of the costs of ownership — for most of the first five years it is the biggest one. What a car costs to run puts both lines in the same table.

Within a budget band, the rate matters more than the price. Here is the same €34,000 held for five years at each end of the catalogue’s range.

€10,554 separates the best case from the worst on identical money. That is nearly a third of the purchase price, and it is decided by which badge and which fuel you chose rather than by anything you do with the car afterwards. It dwarfs every discount you are likely to argue your way to on the forecourt.

Resale value is set by the person buying the car from you in five years, not by the person selling it to you today. Everything below is really the same question: how many people will want this exact car, second-hand, and how sure will they feel about it?

• Badge. Resale is a popularity contest held three years late. Of the 33 brands here, the ones used buyers search for by name hold value, and that correlation with how good the car actually is runs weaker than you would hope.
• Fuel type. The used buyer is inheriting your running costs, not your purchase price, so they price the fuel accordingly. Anything the second-hand market is unsure about — the state of a battery it cannot easily inspect, the cost of a repair it has not seen many of yet — comes off as risk, and risk is a discount. Petrol, hybrid or electric weighs the other side of that trade.
• Supply. A car you waited six months for holds its value. A car being discounted on the forecourt while yours is three months old has already reset what yours is worth, and there is nothing you can do about it.
• Specification. Options rarely come back. The exceptions are the ones used buyers filter on: an automatic gearbox in a market that wants one, a tow bar, the bigger battery, a heat pump. Trim you chose for yourself is usually money spent, not money parked.
• Colour. Mainstream colours sell to everyone. An unusual one sells eventually, to fewer people, for less. This is the cheapest item on the list to get right, because getting it right costs nothing.
• Mileage. Valuation tables work in bands, so crossing a round number shortly before you sell costs more than the last few thousand kilometres deserve. If you are near one, sell before it, not after.

This is the part most depreciation advice skips. Depreciation on paper and depreciation in your bank account are not the same thing, and which one you are looking at depends entirely on how long you keep cars.

• You sell at three years. You pay all of it, at the steepest part of the curve. On the median car that is €11,611 at the median rate, and picking a slow depreciator is worth €8,406 to you against picking a fast one.
• You sell at ten. You pay most of it, but the gap has started to close — a car shedding 19 per cent a year eventually runs out of value to shed.
• You keep it until it is scrap. You pay exactly the purchase price, divided by however many years you had it. The rate is irrelevant. The only number that ever mattered was what you handed over on day one.

On a €34,000 car the gap between the best and worst rate here widens to about €11,200 around year seven, then narrows again for the rest of the car’s life. That shape is the whole decision rule.

1. Let someone else pay for year one. The steepest part of the curve happens once, to the first owner. A one- to three-year-old car in the specification you wanted is the single largest saving available in this entire guide.
2. Buy the specification the used market wants rather than the one that is fun to configure. You are choosing on behalf of a stranger in five years.
3. Spend less in the first place. Thirteen per cent of a smaller number is a smaller number — see how much to spend for where the sensible ceiling sits.
4. Keep it longer. The same loss spread over more months is a smaller monthly cost, and the late years of a car are the cheap ones.
5. Do not chase a low rate into the wrong car. A car that holds its value beautifully and will not take your pushchair costs you twice: once when you regret it and again when you replace it early.

If a lower purchase price is the lever you want to pull, start at the bottom of the catalogue rather than the middle. The finder will rank the whole list against your budget, and the prepared answers already cover the common cases.