Fun fact: The average American spends over an hour each day (60.2 minutes to be exact) behind the wheel. That makes a total of over 15 full days of driving per person and a national total of 2.8 trillion miles each year!1 That is, it is only 2.7 billion miles from Earth to Neptune. And here we are, putting in 2.8 trillion a year driving around on our own boring planet.
On top of that, every one of those miles we rack up adds up to something the auto industry calls “car depreciation.” And that’s why I’m writing in the first place – to uncover the mysteries of car depreciation, including (but not limited to) how it affects your car’s value and maintenance or repair decisions, not to mention how it comes into effect if you’re thinking of selling your car.
So how quickly do cars depreciate anyway, and how much could yours be worth? Buckle up. Eyes on the road, boss. Let’s go for a ride and find out.
What is Car Depreciation?
Depreciation of a car this is just a $10 word that refers to the value of your car when you bought it compared to what it’s worth when you sell it. The value of your car goes down over time with the wear and tear of everyday use. So, the more you drive your car, the faster your car’s value will decrease (or depreciate). Makes sense, right?
If you bought a car tomorrow for $20,000 and then sold it three years from now for $12,000, that means your car lost 40% of its value in the three years you owned it. That’s car depreciation in a nutshell.
What Causes a Car to Depreciate?
Now, plenty of factors can affect the value of your car. There are some you can control, and some you can’t. These are some of the biggest causes of car depreciation.
- Mileage: The more miles you drive, the less your car is worth. But if you can keep your car’s mileage down, your car will hold more of its value. (Tips on how to do that are coming soon – as in, at the end of this very article.)
- Fuel Economy: Gas prices are high, but even before we saw those price hikes at the pump, car buyers have always shied away from cars that get more miles per gallon.
- Car Model: More popular car models will not depreciate as much as others. Because it’s much easier to sell something if someone else wants it.
- Condition: Damage to the car – both inside and out – will put a dent in the value of your car when you try to sell it.
- Car Reputation: If the make of the car (aka brand name) is known for being long-lasting, it will hold its value longer. I mean, it makes sense. When you’re in the market for a used car, you want to feel like you’ll get many more years out of it.
Again, that’s not an exhaustive list (exhaustive, car exhaust – there must be a great joke in there I’m missing), but here are some things to consider as you learn more about the wild world of car depreciation.
How Fast Do Cars Depreciate in Value?
Well, regardless of the mileage, make or model — there’s one thing that’s almost always true no matter what car you buy: New cars depreciate a lot faster than used cars do. How much faster? Well, it’s not pretty.
- After One Minute: A brand new car loses around 9% of its value the moment you drive off the lot.2 Did you get high when you read that? I did as I wrote it, and I already knew! So, for an average new car cost of around $48,000, you’re basically throwing $4,320 out the window when you drive the car home for the first time!3
- After a Year: Research shows that new cars hit their biggest drop in value within the first 12 months of ownership. After a year, your car will probably be worth around 20% less than what you paid for it.4 Twenty. Percentage. Less.
- After five years: After that steep and painful first year discount, a new car will depreciate by 15% each year until it reaches the five year mark. So, after five years, that new car has lost all of its new car smell and about 60% of its value.5
|
Initial Car Value |
$48,000 |
|
Value of a New Car After . . . |
|
|
1 Minute |
$43,680 |
|
1 year |
$38,400 |
|
2 years |
$32,640 |
|
3 Years |
$27,744 |
|
4 Years |
$23,582 |
|
5 Years |
$20,045 |
What Kinds of Cars Depreciate the Most (and the Least)?
Although no vehicle is immune to car depreciation, some makes and models hold their value better than others.
And let me tell you, people, year after year, brands like Toyota, Jeep and Honda, which have a reputation for reliability and durability, often get high marks when it comes to holding their value.6
Here is a list of vehicles with the lowest and highest depreciation rates in 2023:7
The 5 Best Vehicles With The Lowest Depreciation
|
Site |
Model |
Average 5 Year Depreciation |
|
1 |
Porsche 911 (coupe) |
9.3% |
|
2 |
Porsche 718 Cayman |
17.6% |
|
3 |
Toyota Tacoma |
20.4% |
|
4 |
Jeep Wrangler/Wrangler Unlimited |
20.8% |
|
5 |
Honda Civic (sedan/hatchback) |
21.5% |
Top 5 Vehicles With the Highest Depreciation
|
Site |
Model |
Average 5 Year Depreciation |
|
1 |
Maserati Quattroporte |
64.5% |
|
2 |
BMW 7 Series |
61.8% |
|
3 |
Maserati Ghibli |
61.3% |
|
4 |
BMW 5 Series (hybrid) |
58.8% |
|
5 |
Cadillac Escalade ESV |
58.5% |
This is the deal when it comes to buying a car at either end of the depreciation scale. On the one hand, cars that hold their value very well are easier to resell at a higher price, but they also tend to be more expensive to buy up front.
Meanwhile, you can probably get a great deal on a five-year-old BMW, but that’s because it can be expensive to repair.
So, here is a car buying tip for you. If you’re in the market for a vehicle, do your research. Don’t forget to consider the different depreciation rates for each car and why they lose so much (or so little) value – before handing over money for your new ride.
A brand new car loses around 9% of its value the moment you drive off the lot. So, with a new $48,000 vehicle, you’re basically throwing $4,320 out the car window as you drive the car home for the first time!
How To Know What Your Car Is Worth
You are probably wondering how much of an effect depreciation has had on it your car since you bought it. Here’s a little cheat code for you: Websites like Kelley Blue Book and Edmunds can give you a good idea of how much your car is worth and what you could make if you sold or traded it in today.
They will take a number of factors into account – including your car’s current mileage, condition and even the color – to give you an accurate estimate in minutes. It’s not magic, but it will feel like it.
After that steep discount in the first year, that new car will depreciate by 15% every year until it reaches the five-year mark.
How To Reduce Your Car’s Depreciation Rate
Although you cannot avoid car depreciation, you can slow down the process. Here are three ways to do just that:
1. Keep your car mileage down.
The average American drives about 11,000 miles a year.8 That breaks down to more than 900 miles every month!
Remember that one episode of The Office where Jim decided to cycle to work and showed up in his typical button-up shirt and tie, drenched in sweat? I’m not saying that’s your new life—unless you’re looking to increase your cardio, save gas, and depreciate your car in one bold move. (If so, bring a change of clothes and plan to shower before you get to your desk.)
But there are definitely things you can do to cut down on the miles you drive. Try to cram all your errands into one weekly trip or carpool to work a couple of times a week with a colleague. If you often take long cross-country road trips, consider putting those miles on a rental car instead. All those miles saved add up!
2. Follow your car’s maintenance schedule.
From regular oil changes to tire rotations, it’s the little things that make a big difference when it comes to car maintenance. And staying on top of maintenance helps the car retain its value.
Not only that, but regular maintenance also improves the safety and performance of your car while saving you thousands of dollars in repairs down the road. It’s win, win, win.
When in doubt, check your car owners manual for a service schedule so you know when to take your car to your mechanic for maintenance.
Want more maintenance tips? We have an entire chapter dedicated to car maintenance in our free Ramsey Car Guide!
3. Buy reliable, gently used cars.
The numbers don’t lie: New cars lose their value so much faster than use cars do it. That’s why I’m a huge fan of buying reliable, used cars – with cash! The cash part means you’re not stuck with a car loan (and the monthly car payments) for years even as the value of the car depreciates. And drops. And drops.
And the used car part means someone another is largely responsible for the rapid depreciation of that new car in the first year.
You’ll still get a reliable ride – but you’re buying it based on the fact that it’ll save you money overall. Yes, please, and thank you.
(Visual CTA here for George’s new book? Fits very well thematically.)
Don’t Forget Car Insurance
Hey. This is the last car tip of the day. Don’t choose your car insurance because the ad made you laugh. I mean, I’m a fan of creative advertising, but I also want to know that I’m getting the right coverage for the car—and that I’m not overpaying!
Whether you’re in the market for a new car (for you) or plan to drive Old Faithful for many years to come, talk to a RamseyTrusted professional to get the right coverage (for you) at the best price.
Find an independent agent today!