Car depreciation: How much will your new car lose? | Loan Boom (2024)

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Car depreciation is the decline in value of a vehicle over time. Depreciation varies by car model, brand, maintenance and other factors, but depreciation on new cars can generally be as high as 20% (or even more) in the first year and can reach around 40% after five years.

Depreciation is important because it can affect whether you end up upside down in the car (i.e., you owe more than the car is worth). It's a factor in your car's total cost of ownership - and if you sell, trade in or collect it, it will affect how much you get out of your car.

Depreciation is the difference between what you paid for the car and what it will be worth later. While homes typically appreciate and increase in value over the years of owning them, cars lose value over time. There are no hard and fast rules, but a car's depreciation is typically 15% to 20% in the first year.

Every car loses value over time, except...classic and collector cars, which can be worth much more than when they were new. So depreciation isUsed cars are usually cheaper than new cars. The price of a used car reflects the loss in value since the car first rolled off the dealer's lot. A used car will continue to depreciate, but usually not as quickly as a new car. The car lease prices are partly based on the depreciation of the car during the lease period.

The loss of value is significantif you pick up the car in the event of an accidentand your insurance company will pay the current market value of the car. The amount may not be enough to pay the loan balance if you have one. If you trade in or sell the car, the depreciation could mean its current value could be less than what you need to pay off the remainder of a loan. Depreciation is also part of the total cost of ownership, which also includes insurance, maintenance and repairs, licenses and fuel.

To learnHowdetermine the value of your car.

Reasons for car depreciation

The vehicle depreciation rate varies for a number of reasons. It's good to understand why cars lose value over time so you can make smart decisions when buying the car and during your ownership.

• Type.Pickups and SUVs are usually in high demandas used cars, so they retain a higher value than other vehicles; on the other hand, luxury sedans tend to depreciate more quickly. In-demand cars such as Chevrolet Corvettes and Ford Mustangs also retain their value longer.
• Brand model.Some do, likeToyota, have lower depreciation rates on many models. The Jeep Wrangler and Wrangler Unlimited also have some of the best depreciation rates. Meanwhile, several BMW models have depreciation rates that are significantly high – well above the typical 40% over five years.
• TheAs cars age, their value tends to decrease as they become used cars.
• Kilometers.The more miles a car goes, the lower its value is likely to be due to the potential repair costs.
• Condition.A car with normal wear and tear is likely to have a higher value than one that shows signs of abuse or neglect of maintenance.
• Reputation.Some makes and models are known for their high ownership costsexpensive maintenance and repairs— these types of cars usually lose their value faster.

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Cars lose the most value in the first year, and depreciation lasts about five years. A car can lose up to 20% of its value in the first year, dropping to about 40% of its original price in the first five years. This means that it loses about 15% of its value every year after the first year.

Depreciation varies widely by make, model and market demand for the vehicle. Here's a look at the cars that have fallen the most and the least over the past five years:

Top 5 Lowest Depreciation Rates for Vehicles

Top 5 Highest Depreciation Rates for Vehicles

Based on data fromiSeeCars.com.

Steps to protect you against depreciation of your car

Some car depreciation is real, but there are steps you can take to reduce the impact:

• Reduce your mileage.If you keep the car's mileage below the national average of about 14,000 miles per year, your car may have a higher value.
• Follow a regular maintenance schedule.Follow the manufacturer's recommended schedule for fluid changes, brake checks, and other typical tasks. Keep records to show potential buyers that the car has been well cared for and to address any recalls related to your car.
• Buy GAP insurance.GAP insurancepays the difference between the loan balance and the value of the car in the event of an accident that results in the car being declared a total loss. It protects you against depreciation of your vehicle or underwater in the car. In many cases, GAP insurance is requiredbilling.
• Keep it clean.Take care of the inside and outside by washing, waxing and vacuuming regularly and wipe the inside regularly. Repair any signs of rust or dents and scratches in the paint.
• Stick to a respected brand name.Kopencars with a reputation for reliability and high resale value, such as the one with the lowest depreciation rate above.
• Choose the color carefully.Wild or unattractive colors can decrease the resale value of your vehicle. Choose neutral colors such as white, black or silver so that your car retains its value.

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