What Is Car Depreciation?
Car depreciation is the monetary value that your car loses as time progresses. This means that the difference between the initial price you paid for the car and its resale value at any given time is how much it’s depreciated since you bought it.
How Much Does a New Car Depreciate?
Depreciation is most rapid in the first year of ownership, but it actually hits the hardest in the first minute. In fact, a new car will typically lose about 10% of its value the moment you drive it off the lot. Beyond that, you can expect your car to lose as much as 20% of its value in the first year, then as much as 10% each of the following four years. So, a new car can be worth as little as 40% of its original value in just five years.
What Causes Depreciation?
There are several factors that contribute to a vehicle’s depreciation rate, but these are a few of the major ones you’ll encounter:
- Mileage: Simply put, a car’s value decreases the more miles it’s driven.
- Condition: Even minor wear and tear can have a significant impact on a car’s value.
- Reliability: Models with a proven reliability track record will typically retain more value over time than less reliable models.
- Popularity: A used model with high consumer demand will be worth more than a used model with low consumer demand.
How Can I Minimize My Car’s Depreciation Rate?
While you can’t stop vehicle depreciation, you can certainly take measures to contain it. Here are ways you can maximize your car’s value over time:
- Minimize Mileage: Minor efforts to minimize driving, such as consolidating multiple errands in a single trip, can save significant miles over time.
- Maintenance: Keep up with the maintenance intervals outlined in your owner’s manual and be quick to fix any problems that arise.
- Drive Carefully: Be mindful of the way you drive to avoid overstraining your vehicle’s mechanical parts.
Minimizing depreciation shares many similarities with maximizing your car’s lifespan, so you can learn more by reading our recommendations there.
Which Cars Depreciate Most Rapidly?
Luxury vehicles will depreciate at a high rate because their cost to maintain can be expensive and they solicit a low consumer demand in the resale market since luxury shoppers want the latest features. Electric vehicles also depreciate at a high rate because government tax rebates bring down their MSRPs considerably and the technology is quickly evolving with each passing year.
On the other hand, pickup trucks and rugged Jeep models, like the Wrangler, depreciate at a slower rate because of their durability and popularity among consumers. Brands with a reputation for reliability, such as Toyota, also depreciate at a slower rate.