Most cars are depreciating assets, losing 14 percent per year on average in the first three years, then up to 8 percent after that, says consumer watchdog Choice.
For those who purchased a vehicle with a car loan, many could still be paying off a depreciating asset after five years.
But new research shows that some cars hold their value better than others and by doing a bit of research you can ensure you make the right choice when buying a used car.
British used car specialist Motors.co.uk has compiled a list of cars which best held their value in 2012. While there is obviously a lot of variation between makes and models, as a rule of thumb, researchers found small cars tended to be the best performers.
Taking the title for the second year running, BMW 1-Series ranked top of the Motors.co.uk list when it came to retaining value. Researchers recorded a mere 5.6 percent annual drop in value when they compared the average cost of buying a 2010 model with a brand new model.
Losing around 6 percent of its value per year, the popular Ford Focus is second on the list, proving that non-luxury vehicles can be great buys too.
Pint-sized and fuel efficient, makes this model a popular first car. And losing just 7 percent value in the first year makes both a new and used version well worth considering, according to the study.
A family car geared at the luxury end of the market, the A3 has strong resale value with 12 percent depreciation rate, according to the research.
Mazda makes the top 10 with its popular family model, the Mazda 6. And losing just 14 percent of its value after the first year, makes it a good option if you plan to upgrade within the first few years of buying.
Also making the list is BMW’s 5-Series, British favourite, Mercedes’ C Class and the Ford Fiesta; all with depreciation levels at 15 percent or less.
The cars that lost most value in three years
In a separate study conducted last year, British car valuation specialists Glass’s Guide, revealed the vehicles which lose the most value in three years.
At the top of the list is the Volvo S40 1.6S, which reportedly dropped 58 percent in price in the three years to 2011. Renault’s Megane also made the list with 54 percent depreciation rate over three years, along with the Lexus IS and Ford’s Mondeo; both cars dropping a reported 53 percent in price since 2008.
For the thousands of Australians paying off a car loan and looking to sell up or refinance, a car’s depreciation rate may be particularly important. Option for a low interest rate on a car loan will also help to sweeten the margin.
If you purchased a car in early 2008 for $30,000, borrowing the full purchase price at 14 percent over 5 years, by the third year your loan will be just under $15,000, according to RateCity calculations. If the car has lost more than 50 percent of its original value, you could be in for a nasty shock; repaying a loan that outweighs the value of your car.