What is Car Depreciation? (2024)

According to sources such as Kelley Blue Book and Capital One, car depreciation is an unseen force that impacts every vehicle, whether you buy it new or used. It is how much your car loses in value every second. As soon as you sign the paperwork and your dealer hands you the keys to your vehicle, an invisible clock starts ticking. The car begins losing value from the time you start the engine until you try to resell it.

Dave Ramsey brings you this scenario: you have just pulled off the lot in your new vehicle. When all was said and done, you paid $40,000 for it. Now imagine it's five years from now and you want to sell the car. Even if you add aftermarket accessories, you will not recoup your $40,000. Instead, you find a buyer willing to pay $26,000 for it. The loss of $16,000 means your car has lost 40% of its value since you brought it home.

Why Does Your Vehicle Lose Value?

Why does your vehicle lose value while you own it? Several factors impact your vehicle's value over time. Some of which you can control, others you cannot.

• Your driving habits. The more you drive your car, the less it is worth by the time you sell it. Yes, you can enjoy the memories of your favorite road trip. Yet the longer the trip is, the more it's going to impact the final price.
• The condition of your vehicle when you put it up for sale or go to a dealer to use it as a trade-in toward your next car. If you avoid wrecks and keep your interior looking good, you can keep the price up.
• Gas mileage. As gas prices continue to change on a regular basis, your car's value suffers. Due to rising fuel costs, many drivers want cars that get better gas mileage, so if your vehicle drinks gas like you drink water, it will impact the value.
• What are people looking for in the market? Consumer tastes change all the time. Sometimes people want one body style over another. Sometimes they are looking for specific features more than others, and this can impact the value as you try to sell your vehicle.
• The reputation of the brand and model. Some brands and body styles hold up better over time. The person who buys your old car wants to make sure they get a vehicle that has some durability in it.

Depreciation Timeline

The minute you sit in your new car for the first time, an invisible clock starts that continues running until you sell it or trade it in.

• The minute you leave the lot, you already down 11% in value. That means if you bought a $40,000 vehicle, it is only worth $35,600 by the time you get it home.
• Per Trusted Choice, after one year, the vehicle has lost 25% of its value. This is the most significant drop it will suffer thanks to age during the time you own it. Using the same $40,000 vehicle, after one year, it is worth $30,000.
• Three years after you buy the car, it drops 46% of its value, meaning it is now worth $21,600. This is typically a time when people consider buying their next vehicle.
• If you hang on to it for five years, your $40,000 investment is worth $18,800, meaning you have lost just short of 60% of the value from the date of purchase.

Which Vehicles Lose the Most Value From Age?

Every car loses value over time. However, some vehicles tend to lose more than others. If you are looking to get the most out of your investment, consider avoiding a few models.

• Luxury cars. Thanks to the added features, these cars start with higher price tags and therefore lose more over time.
• Electric vehicles. As more come on the market and they become a commonplace item, their value decreases while their price does not.
• Vehicles with challenging or high-cost repairs. Brands like BMW and Volkswagen are nice to own but are expensive to maintain. This high cost may make it harder to recoup your investment in the end.

Research the brands you are considering. Some like Toyota and Honda are known for lasting longer under typical driving conditions. These often hold their value better over time.

What Can You Do to Keep the Value Up In Your Vehicle?

Yes, age catches up and impacts your car. However, there are steps that you can take to try and deter some of the deprecation over time.

• Watch how much you drive and how long you drive. The more you are behind the wheel, the more the value drops because of the miles on the engine. If you are planning a cross country road trip, use another car. The price you pay for a rental gives you the chance to keep the value of your vehicle in good shape.
• Keep up on your regular maintenance. Nothing cuts the life of a vehicle shorter then poor maintenance. According to Traveler's, it is important to follow a regular schedule for oil changes and checking your fluids. Make sure your tires are in good shape, take it for regular tune-ups, and address any concerns with your mechanic. Not only do these steps help with the performance of your vehicle, but they may increase your resale value.
• Consider buying a used car. All cars lose their value over time. However, most used vehicles lose less value throughout their lifespan than a brand new model. Research the car and the dealer to make sure you are working with reputable brands and dealerships so you can get the most for your investment. Another positive for buying used is often you can purchase these cars with cash rather than having to make a long term commitment with a car loan or another form of payment.