How Much Does a Car Depreciate Per Year?

Depreciation describes the value of an asset that decreases over time. In a perfect economy, houses appreciate while cars typically depreciate. Depreciation often helps manifest the value differences between a new car with less than 1,000 miles and a used car with over 100,000. Many consumers don’t worry about depreciation until it’s time to buy or sell a car.  

Factors that affect depreciation 

Depreciation isn’t a magical number that industry experts or dealerships make up. Instead, it’s a value based on the following factors: 

• Type of car: When it comes to a car vs. truck, cars tend to depreciate faster than trucks and even SUVs. Trucks are versatile and slightly better built in most cases, so they’re worth more, even at the used level. Even the most dilapidated truck can still cost more than a sedan of the same condition. 
• Age (years): Older cars tend to have fewer pieces of technology, many outdated or obsolete. Advanced safety features are a relatively new technological advancement, so cars without these features tend to depreciate more because consumers consider them less safe than modern cars. 
• Mileage count: The more miles a car has seen, the more it's been worn and torn. Nearing the 100,000-mile mark can often be a death sentence for cars, even though it’s about where depreciation rates slow down significantly. 
• Brand reputation: Select brands are considered more reliable and valuable than others, specifically in resale value. Brand reputation can fetch more for a model nearly identical to another of a different brand with a less favorable reputation. 
• Make and model: Ford makes a great example. The Ford GT and Mustang are highly sought-after, but you’d have difficulty finding someone as ardent about a Fiesta or Focus. 
• Condition: Immaculate 10-year-old cars fetch higher prices than cars fresh off the dealership lot that have been through the wringer. A little TLC can go a long way in slowing depreciation.

Keep reading to learn how to calculate depreciation and slow your car from depreciating so you can get more for it later. 

Mechanical objects such as cars wear over time. It’s the same principle that wears down your favorite childhood stuffed animal or favorite T-shirt that’s no more than rags after years of going through the washing machine. Cars depreciate to reflect the loss in value as components see more wear and tear. 

Cars also depreciate as new models come onto the market, most with unique features that make them more capable than the last generation. This difference is especially true in the luxury market segment, where the latest technology caters to buyers who want to stay on the cutting edge. 

Cars can also depreciate based on what types of vehicles the public wants. In recent years, many consumers have asked themselves if they need a truck or SUV to be safe on the road. The family four-door sedan is quickly becoming the all-wheel-drive-capable family SUV. 

The only cars not likely to depreciate are classics and collectibles. Specific models or editions may appreciate, but they typically aren’t kept in the same way most consumers keep their cars. These museum-quality pieces hardly ever see even a square inch of blacktop. 

Calculate depreciation by subtracting the current fair market value from the purchase price of your vehicle. Kelley Blue Book (KBB) offers the 5-Year Cost-to-Own calculator, and Edmunds hosts a True Cost-to-Own calculator to find the appropriate fair market value for your car’s condition. 

Here’s a quick example of what that might look like for a Ram 1500 you purchased for $45,000 that’s now worth $25,000:

Purchase price of $45,000 – Fair Market Value of $25,000 = $20,000 in depreciation 

You can also estimate depreciation based on a 20% depreciation rate in the first year and 10% depreciation yearly afterward. Use the calculation below to determine the depreciable loss in value: 

Purchase price x Rate of depreciation (decimal) = Depreciable Loss

Purchase price – Depreciable loss = Market value

The table below demonstrates the depreciation rate for a GMC Sierra 1500 purchased for $60,000 new. If you wanted to calculate the 20% depreciation for the first year of ownership, you would multiply $60,000 by 0.2 (20%) and subtract that result ($12,000) from the purchase price for a market value of $48,000.  

Note that you would need to swap out the “Purchase price” value for the “Market value” of the year before to achieve the correct market value for the next year. For example, Year 2’s depreciation rate is the result of the following formula: 

Year 1 Market value ($48,000) x 0.1 (10% depreciation) = $4,800

Year 1 Market value ($48,000) – $4,800 = Year 2 Market value ($43,200)

Cars are a physical asset that will depreciate under most circumstances. Keep reading to see how you can slow the depreciation of your car. 

What is the depreciation rate of a car? 

The depreciation rate of a car depends on many of the factors listed above, including make and model, age, mileage, and condition. Cars generally depreciate faster in the first few years of their lives:

Insert a simple line chart entitled “Depreciation” that shows “Time” on the X-axis and “Value” on the Y. The line should start high on the Y-axis and flow down in a steep, then gradual curve toward the opposite end of the X-axis. 

Depreciation then slows until it evens out around 100,000 miles or eight to 10 years on average. 

How much value do cars lose each year? 

New cars depreciate by about 20% within the first year. Depreciation can range from 10% to 15% each year after that. By the fifth year, most cars are over halfway depreciated. However, various factors can increase or retard depreciation after the initial 20% loss in value. 

Cars remain one of the fastest depreciating assets, especially as technological advances keep automakers on their toes as they compete for customers. However, beyond the initial 20% depreciation, cars tend to take one of three depreciation paths: 

• Depreciation lower than normal
• Average depreciation
• Deprecation higher than normal

One of the advantages of buying a used car is that you can typically estimate depreciation. Honda and Toyota present strong lineups of vehicles demonstrating low deprecation and a corresponding high resale value. However, luxury companies such as BMW and Mercedes-Benz tend to have higher depreciating assets because these brands prioritize cutting-edge technology. 

Commuter cars and those destined for the fleet market segment often show average depreciation. Car rental companies typically fill their lots with these vehicles, which experience depreciation each time they’re rented. 

Customer response within the first few years can often predict how well (or poorly) a car will depreciate. For example, electric vehicles (EVs) like c often experienced high depreciation when they became available. However, recent years and sales have shown that EVs retain value because consumers are more willing to accept these vehicles as their own. 

Cars with the lowest depreciation tend to lose 10% to 20% of their value. Those with the highest depreciation tip the scales at 60% of their value new. Here’s a quick-reference list of the cars with the highest and lowest depreciation rates: 

One of the tricks car salesmen use is to get you in a car lease to avoid depreciation. However, the monthly payment you’re making pays for the car’s depreciation based on your mileage, lease terms, and the condition in which you return the car. Unless you’re buying a one-of-a-kind car expected to grow in value, you’ll pay depreciation regardless of whether you lease or buy. 

Protecting your car against depreciation isn’t tricky. Although you can’t slow depreciation entirely, here are a few ways you can reduce its impact to retain more value in your investment: 

• Buy cars that are blue, silver, or black instead of orange, yellow, or green
• Drive your car as little as possible to keep the mileage low
• Keep up with regular maintenance to protect mechanical and electrical components from excessive wear and tear
• Research and purchase makes and models with high resale value 
• Avoid makes and models designed for fleet service, including sedans and compact cars 
• Keep your car as clean and damage-free as possible 
• Avoid customizing your car with stickers and aftermarket accessories
• Invest in a gently used car instead of a brand-new car 
• Consider buying cars with high safety and fuel-efficiency ratings

Fighting depreciation takes hard work and dedication. If you’re tired just looking at this list, consider a FINN car subscription. FINN offers a monthly payment you can budget for, including maintenance, registration, insurance, and depreciation. Pick out the car you want and have it delivered straight to your door.