Buying a new car means paying almost £6,000 that you will never get back.
That’s because the average new car loses 42% of its value in the first 12 months after it is driven from the forecourt, with some models dropping their value far faster.
The Ford Focus, the UK's best-selling car, can be bought for almost half price if you opt for a one-year-old vehicle. However, the eighth best-selling car – the BMW 325d SE Coupe – loses just a quarter of its value, figures from price comparison service uSwitch reveal.
And the losses keep mounting for people holding onto their cars longer than 12 months.
The average new car costs £15,430. It loses £5,967 in its first year – 42% of the purchase price. This rises to 52% in the second year, 60% in the third year and 67% in fourth year – totalling £9,676 of its original value.
And even if the car is stolen or written off in its first week you could lose money, with some insurers not providing new replacements and deducting depreciation from pay-outs.
"Buying a brand new car is an exciting moment, but in reality it is not as simple as just driving off the forecourt and into the sunset," said Aron Thompson, uSwitch head of insurance.
Depreciation explained
Depreciation is different for each model of car, depending on the popularity of the car, the number of manufactured vehicles and the value or quality of the brand.
The Ford Focus Style 1.8 loses the largest chunk of its value in the first year at 48% - rising to 70% after four years. The Toyota Prius 1.5 T Spirit also performs poorly, dropping 45% in the first year and 68% after four years.
The top-selling cars that depreciate the least are the BMW 325d SE Coupe, the VW Golf SE FSI 1.6 and the Vauxhall Corsa Club 1.4 3dr.
High-performance cars also perform well – with the Audi R8 Coupe 4.2 FSI losing just 16% of its value after the first year.
"For most, a one-year-old car represents far better value as this is the period when the bulk of depreciation takes place," said Thompson.
"The amount of money lost on a car in the first year does vary from one brand to another but the Ford Focus clearly takes the number one spot with almost half of the car's value disappearing after just 12 months. Despite this, it was the UK's top selling car in 2006."
Insuring you don't lose money
While depreciation costs you almost £500 a month on the average new car, not all insurers take this out of claims.
Companies including The AA, More Than and Swiftcover provide new cars if a vehicle is written-off in the first year, with SAGA extending this to two years, uSwitch points out.
There are also car insurance providers that only pay out "market value" - deducting depreciation from any claim – such as the Admiral Group.
"Buying a brand new car is a big expense so it's really important that people do their homework and find a car that will give them value for money," Thompson added.
"In addition to this, motorists need to think about the cost of insuring the car before they hand over the money."
Cheapest cars to insure
Insurance companies classify cars so that they can provide the correct level of insurance. To do this they assign each car to a group between 1 and 20. This means that each model of car can be accurately banded with cars of similar characteristics.
Most family cars fall into groups 6 to 12, unless they have high-powered engines. If you have a sports car, or high-performance car then the group rating will be higher. So the lower the group rating, the less your insurance premium costs.
Lower group cars (groups 1-4)
Some examples of cars that will be cheap to insure:
- Fiat Panda, Punto
- Peugeot 107, 206, 207
- VW Polo, fox
- Renault Clio
- Ford Fiesta
- SEAT Ibiza
- Smart
- Vauxhall Corsa
Middle of the range (groups 8-12)
- BMW 1 Series
- Volvo C30, S40
- Ford Galaxy
- Honda Civic
- Golf Hatchback
- Vauxhall Zafira
- Citreon Grand C4 Picasso
The Highest group cars (groups 16-20)
- Mini Cooper S
- Audi TT, S8
- Bentley Continental
- Janguar XK Coupe
- Ferrari
- Honda S2000
- Aston Martin Vantage
- Range Rover Sport
- Mercedes-Benz S-Class