Depreciation costs are usually calculated over a course of three years, based on an annual mileage of 12,000 miles. If you drive considerably more miles each year, expect the rate of your vehicle’s depreciation to be increased.

Car pricing guides such as Glass’s will provide an estimated resale price for your vehicle. Deducting this estimate from the price you paid originally shows roughly how much money you will eventually lose on your car.

Interestingly, due to different vehicles varying in their rate of depreciation, an initially more expensive car can actually cost less over the course of a three year period.

As an example, contrast paying £12,000 for a car that loses 30% of its value after three years, with a £14,000 car that loses 25%. If sold after those three years, the 'cheaper' car will have cost a total of £3,600 whereas the more expensive model will have cost £3,500.

In addition to the cost of depreciation you’ve calculated – add the cost of three years servicing, repairs, MOT, tax, insurance, parking and fuel. The resulting figure reveals the true cost of three years’ motoring.

Depreciation advice

The importance of depreciation is highlighted in the above example – and it shouldn’t be underestimated when buying your next car.

• Do your research when looking at new models, finding out which are the most popular vehicles among the public and the motoring press. These fashionable cars are the most likely to hold their price for a prolonged period.
• Consider buying a year-old car rather than a brand new one. The steepest drop in price will have occurred in that first year – so buying just as the car’s price begins to stabilise offers the potential for a great deal.
• Think about the environment. With more consumers going green, large petrol engines may be shorter on demand in future years and could potentially suffer from faster depreciation.
• Remember that a full service history can add hundreds of pounds to the value of your vehicle when it comes to selling.