UK finance jargon - in plain English
How much value an asset loses over time.
Depreciation is the reduction in an asset's value as it ages, gets used, or becomes outdated. It applies most visibly to cars and electronics, where new items can lose a significant chunk of their value in the first few years. For businesses, depreciation is also an accounting concept that spreads the cost of a long-term asset (like equipment or machinery) across its useful life rather than recording it all at once.
You buy a new car for £25,000. The moment you drive off the forecourt it might already be worth £22,000, simply because it's now second-hand. After three years it could be worth around £14,000. That's £11,000 gone, not through damage or neglect, but through the natural loss of value over time. If you're financing the car, it's worth understanding this before you sign.
Numbers simplified for illustration. Depreciation rates vary significantly by make, model, mileage, and condition.
People treat cars as investments. Most everyday cars lose value consistently over time. They are not assets that grow. Only rare classics or limited-edition vehicles tend to hold or increase in value, and even those aren't guaranteed. If you're spending a lot on a car, depreciation is one of the biggest real costs to factor in, often larger than the fuel or insurance.