Cars and the 50-3 guideline

By | 8th May 2017

Cars-and-the-50-3-guideline

As a very rough guide, cars generally depreciate by 50% over 3 years.

Whether this depreciation is a reduction on the amount you paid initially for the car outright(preferable) or through the monthly charge for leasing or PCP, it is still an amount that has to be paid.

For example:

New small family car – £18,000

After 3 years – £9,000

After 6 years – £4,500

As the car gets older the cash value that is lost in depreciation reduces, as the amount paid initially is a smaller amount.

However, the more you pay for a car the higher this cost is:

– A supposed family SUV – £60,000 new, loses around £30,000 over the first three years! (More than an average annual wage for the UK.)

– Whilst an electric SUV at £100,000 new, would lose £50,000 over three years – such a high amount that even the lower cost of ‘fuel’ would have a limited effect on the losses.

When considering cars it is important to look at expected time of ownership and initial cost to work out your true costs.

Changing cars every few years will cost you dearly, due to the higher amount that the 50% loss is calculated from.

James McBrearty started his own business from scratch in 2006, to help the self-employed.

He helps people to escape from the corporate world and shares his thoughts here on the changing world of work, technology and personal finances; as well as the occasional travel post.

Over the next 10 years things are going to change significantly. James is a follower of frugality and minimalism; and an advocate of F.I.R.E. to minimise the coming disruption.

4 thoughts on “Cars and the 50-3 guideline

  1. Eileen McDonald

    I think this is one of those things that you think “When I drive it off the forecourt it is worth less…” but you just don’t extrapolate that thought. Interesting reading and it makes a bigger impact when you see the examples in numbers. I am pleased I have had the same car for over four years and don’t intend to change it.

    Reply
    1. James McBrearty Post author

      There were some models of executive cars that were even worse – Audi A8 and BMW 7 series used to drop 50% in the first year alone.

      There was always the joke that you could take 50% of the purchase price to the casino – if you won, buy a new one. If you lost, just buy one that was only a year old with your remaining 50%.

      Reply
  2. Steve from Arkansas

    Same thing in the US. I could afford anything I want but it seems like wasting money to buy new cars for the reason you point out. I guess that kind of thinking is why I’m financially independent and early retired, why change now? I usually buy at least three years old and keep them a long time. When I get a new used one it feels new to me even if it somebody else’s discarded old car. And cars today have no trouble living past 250,000 or more miles. They are amazingly rugged.

    Reply
    1. James McBrearty Post author

      Yes, buying at 3 years old and running up to 9 years old is the best value currently in the UK. Many manufacturers will allow you to extend the warranty up until 8/9 years old, so you get almost the same coverage as a brand new car.

      We tend to do lower mileages here in the UK than the US, but my maxima and camry were still going well at more than 100,000 miles when I traded them in.

      Reply

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