Car Depreciation: Understanding How Vehicle Value Changes Over Time and How to Minimize Loss

When it comes to cars, depreciation is unavoidable. Over time, every car will eventually lose some of its value. Whether new or used, it’s known that you lose a significant chunk of its value when your car drives off the lot. This can feel frustrating when you’ve invested so much time and money in finding the perfect vehicle.  

In this blog, we want to help you understand car depreciation more. How your vehicle changes over time and how to help minimize the loss.  

What is car depreciation?

Car depreciation is defined as the rate at which a vehicle loses its value over time. It’s the difference between how much your car was worth when you bought it and what it’s worth when you sell it.

What is the timeline of depreciation?

As we mentioned, the minute you drive off the lot, an invisible depreciation clock starts running until you sell or trade it in. Let’s look at the timeline of both new and used cars.

Most new cars depreciate by 10% the moment they’re driven off the dealership lot, followed by an additional 10-20% after one year. After the first year, cars typically depreciate by 15-25% per year, making the value of the car decline by upwards of 60% after five years. 

There is also a general formula you can use to estimate the deprivation of your new vehicle:

Value after the 1st year: Price of the new vehicle x 0.75

Value after 2nd year: Value of the vehicle after the second year x 0.825

Value after 3rd year: Value of the vehicle after the third year x 0.825

Value after 4th year: Value of the vehicle after the fourth year x 0.825

Value after 5th year: Value of the vehicle after the fifth year x 0.8251

However, when looking at used vehicles, you’ll save on the upfront cost due to the further depreciation of that vehicle (upwards to 30%).

How your car can lose value, and how you can help minimize the loss.

Although you can’t prevent car deprivation, several factors can impact your car’s value over time. Some you can control, some you cannot.

  • How much you drive your car – the more you drive it, the less it’s worth by the time you sell it. This also reduces the risk of accidents and damage.
  • Gas mileage – as gas prices continue to increase, many drivers are looking for better gas mileage, so if your car doesn’t have the best mileage rate, it could impact the value.
  • The storage of your vehicle – over time, reducing exposure to elements will help to keep your car in the most optimal condition.
  • Regular maintenance – when you maintain the suggested oil changes, tire rotations, etc., your car will have a better value when it comes time to sell.
  • Make and model – if you own an in-demand make and model of a car, it will likely retain its value over a make that isn’t as popular. Also, the reputation of the brand and model can make a difference as some styles hold up over time. Durability is an essential factor when car shopping.
Have questions?

We are happy to answer your questions and get the best solution for you.