How residuals and depreciation work

Whenever you buy something new, it loses value as soon as you take possession; it has to be worth less than what you paid for it, because it’s used.

After all, who would be daft enough to pay the same for something used as new? The problem with cars is that because they’re big-ticket items, they tend to shed value faster than less valuable things. In other words they depreciate at a greater rate and by a bigger amount, so their residuals (retained value) are lower.

The rate at which cars depreciate is largely down to how desirable they are

If you’re a new car buyer, you want a car to retain as much value as possible – if you’re buying used, you’re better off buying something that’s lost a lot more of its value, so it’s cheaper. Or are you?

The fact is, the rate at which cars depreciate is largely down to how desirable they are; if nobody wants them, they’re worth very little – but they’re unloved for a reason. It may be that the image is all wrong – but it could also be that the car is unsafe, poorly designed, rubbish to drive or unreliable. So before you buy a car, find out how quickly it depreciates – and if it’s shed most of its value since it was new, you need to work out why.