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A guide to residual valuesBack

Volvo’s new V60 mid-size premium estate has this week been awarded class-leading residual values by residual value supplier cap hpi.

Cap hpi estimates the V60 D3 Momentum will be worth 38.3% of its new cost price after 3 years and 60,00 miles, making it an attractive purchase for new customers.

If you’re considering purchasing a new or used car, knowing about its residual value further down the line could save you a lot of money.

Buying a car with good residual values could mean lower monthly contract hire and personal leasing rates for owners. Furthermore, a good residual value will make your car a key competitor against rivals.

Below, Trusted Dealers provides prospective buyers with a guide to residual values.

What is a car’s residual value?

Residual value is the term used to describe how much a car is worth after several years; the higher the figure, the more the car is worth used.

Depreciation will occur

Depreciation is a given fact when you purchase any car. Despite the odd exception to the rule, almost every car will lose value over a period of time after you buy it. The rate of depreciation has a huge impact on the total cost of owning a car, so it’s well worth buyers considering a car’s residual value carefully before making a purchase.

New and used car buyers

If you are a new car buyer, you should be thinking about purchasing a car with a high residual value as you’ll get more back when you come to sell it. Used car buyers will benefit more from those cars that lose value quicker, as these are cheaper to buy second hand.

Hidden costs explained

Depreciation can often be viewed as a hidden cost because you don’t spend the money each month, but when it comes to selling a car its residual value can have a huge impact on its price.

If you’re considering buying a vehicle, using websites such as Cap hpi to research the car’s residual value are essential.

Residual values on similar models really can differ by significant amounts of money, so it literally pays to check the expected depreciation of a car before you buy it.

Remember the facts

It’s important to remember that the higher the residual value of a car, the higher its day-to-day running costs might be, and you may have to pay more for a finance deal such as a PCP agreement. Predicting which cars depreciate the slowest can be hard, but there are three golden rules to remember:

  1. a) A desirable badge – a car with a well respected badge such as a Volkswagen or a BMW will usually fetch more at resale. Brands that have built up a reputation for producing well-made, fuel efficient cars will always be popular with buyers who can afford to pay the (often inflated) price.
  2. b) Rarity & exclusivity – if you own or are seeking to own a rare car it should maintain its residual value well, providing its well looked after. For example, an old car is best kept in a garage and not regularly exposed to the elements. Rare cars appeal to buyers who are looking for something unique, so a car with plenty of bespoke features, or a model which is from a limited production line fit well into this category.
  3. c) High market demand – market demand for a car can automatically increase its worth. If the car is from a popular production line, or is possibly discontinued and/or difficult to purchase mainstream, its depreciation may be slower.

How to cash in on residual values

Residual values from cap hpi will show you how much a car will be worth in 3 years and 36,000 miles of driving. For example,  a car with a 50% rating will be worth half its original value, while one with a 35% value will be worth just over a third of the list price.

If you are buying new, choose a car with strong residual values – there will be less difference between what you pay for it and what you get back from the new buyer.

Financing a car

If you plan to finance a car, residual value is even more important because your monthly payments will be calculated based on the difference between the Recommended Retail Price (RRP) and the predicted value at the end of your contract. One of the key things to take note of when comparing the cost of financing your car is not the list price, but the monthly instalments you’ll pay.

Posted by Leana Kell on 16/03/2018