Fun fact: The average American spends over an hour every single day (60.2 minutes to be exact) behind the wheel. That adds up to over 15 full days of driving per person and a nationwide total of 2.8 trillion miles covered each year!1 I mean, it’s 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 it all, every single one of those miles we’re racking up leads to something the car industry calls “car depreciation.” Which is why I’m writing in the first place—to uncover the great 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 play if you’re thinking about selling your car.
So, how fast do cars depreciate anyway, and how much might yours be worth? Buckle up. Eyes on the road, chief. Let’s go for a ride and find out.
Key Takeaways
- Car depreciation is how much your car was worth when you bought it versus what it’s worth when you sell it.
- Car depreciation is affected by several things including the number of miles on the car, fuel economy, and the make and model of the car.
- New cars depreciate much faster than used cars.
What Is Car Depreciation?
Car depreciation is just a $10 word referring to how much your car was worth when you bought it versus 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 drop (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 during 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 your car’s value. Some you can sort of control, and others you really can’t. Here are some of the biggest causes of car depreciation.
- Mileage: The more miles you drive, the less your car will be 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 taken a shine to cars that get more miles per gallon.
- Car Model: More popular car models won’t depreciate as much as others will. Because it’s way easier to sell something if someone else actually wants it.
- Condition: Damage to the car—both to the exterior and interior—will put a dent in your car’s worth when you try to sell it.
- Car Reputation: If the car’s make (aka brand name) is known for being long-lasting, it’ll hold its value longer. I mean, it makes sense. When you’re on the market for a used car, you want to feel like you’ll get a lot more years out of it.
Again, that’s not an exhaustive list (exhaustive, car exhaust—there’s got to be a great joke in there I’m missing), but these are a few things to consider as you learn more about the wild world of car depreciation.
How Quickly Do Cars Drop in Value?
Okay, no matter the mileage, make or model—there’s one thing that’s almost always true no matter what car you buy: New cars depreciate much faster than used cars do. How much faster? Well, it isn’t pretty.
- After One Minute: A brand-new car loses about 9% of its value the moment you drive off the lot.2 Did you just gasp out loud as you read that? I did as I wrote it, and I already knew! So, for the average new car cost of about $48,000, you’re basically throwing $4,320 out the window when you drive the car home for the first time!3
- After One Year: Research shows that new cars hit their biggest drop in value within the first 12 months of ownership. After one year, your car will probably be worth about 20% less than what you paid for it.4 Twenty. Percent. Less.
- After Five Years: After that steep and painful first-year dip, a new car will depreciate by 15% every year until it hits the five-year mark. So, after five years, that new car has lost all its new car smell and around 60% of its value.5
|
Initial Car Value |
$48,000 |
|
New Car Value 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 Kind of Cars Depreciate the Most (and the Least)?
While no vehicle is immune to car depreciation, some makes and models hold their value better than others.
Dave's easiest money-saving tip: See if you're over paying for car insurance.
And let me tell you, people, year after year, brands like Toyota, Jeep and Honda, with a strong reputation for reliability and durability, often get high marks when it comes to holding their value.6
Here’s a list of vehicles with the lowest and highest rates of depreciation in 2023:7
Top 5 Vehicles With the Lowest Depreciation
|
Rank |
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
|
Rank |
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% |
Here’s the deal when it comes to buying a car on either end of the depreciation scale. On the one hand, cars that hold their value really well are easier to resell for a higher price, but they also tend to be more expensive to buy on the front end.
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’s a car buying tip for you. If you’re in the market for a vehicle, do your research. Don’t forget to factor in the different rates of depreciation 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 $48,000 new 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’re probably wondering how much of an impact depreciation has made on your car since you bought it. Here’s a bit of a 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’ll take several factors into account—including your car’s current mileage, condition and even the color—to give you an accurate estimate in just a matter of minutes. It isn’t magic, but it’ll kind of feel like it.
After that steep first-year dip, that new car will depreciate by 15% every year until it hits the five-year mark.
How to Reduce Your Car’s Rate of Depreciation
While you can’t avoid car depreciation, you can slow down the process. Here are three ways to do just that:
1. Keep your car’s mileage down.
The average American drives around 11,000 miles per year.8 That breaks down to more than 900 miles every month!
Remember that one episode of The Office where Jim decided to bike to work and he 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 up your cardio, save on gas, and lower your car depreciation in one bold move. (If so, please 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 knock out all your errands in one weekly trip or carpool to work a couple times a week with a coworker. If you frequently 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 a win, win, win.
When in doubt, check your car owners manual for a servicing schedule so you know when to take your car into your mechanic for maintenance.
Want some more maintenance tips? We have a whole 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 used cars do. That’s why I’m a huge fan of buying used, reliable cars—with cash! The cash part means you aren’t stuck in a car loan (and the monthly car payments) for years even as the value of the car drops. And drops. And drops.
And the used car part means someone else bears the brunt of that new car’s rapid first-year depreciation.
You’ll still have a dependable ride—but you’re buying it based on the fact that it’ll save you money overall. Yes, please, and thank you.
Don’t Forget About Car Insurance
Hey. Here’s my last car tip of the day. Don’t pick your car insurance because the commercial made you chuckle. I mean, I’m a fan of creative commercials, but I also want to know I’m getting the right car coverage—and that I’m not overpaying!
Whether you’re in the market for a new (to you) car or you plan on driving Old Faithful for many years to come, talk with a RamseyTrusted pro to get the right coverage (for you) at the best price.
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