How Much Value Is Lost on a New Car
8 Minute Read | September 24, 2021
From those summer road trips to the beach with your best friends to bringing your baby home from the hospital for the first time, there's no denying that some of our fondest memories involve our cars.
After all, the average American spends almost an hour each day (51 minutes) behind the wheel. That adds up to almost 13 full days of driving each year!1 But sadly, the more you drive and the longer you own the vehicle, the more value your car loses over time. It's something the car industry calls "car depreciation."
Is depreciation fun to think about? Short answer: No. But when you know how it affects your car's value, you can make smart decisions about whether certain types of maintenance are worth it, not to mention whether it's a good time to sell your car.
So, how fast do cars depreciate and how much might yours be worth? Let's dive in!
What Is Car Depreciation?
Car depreciation is the difference between how much your car was worth when you bought it and 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?
Dave's easiest money-saving tip: See if you're over paying for car insurance.
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, several factors can put a dent in your car's value. Some you can sort of control and others you can't. Here are some of the biggest factors that lead to 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.
- Fuel economy: Have you seen many Hummers on the road lately? That's because car buyers like cars that get more miles per gallon.
- Shifting consumer preferences: Like fashion trends, people's tastes in cars tend to change. Some years, folks prefer sedans. Other years, they prefer SUVs. More popular car models won't depreciate as much as others will.
- 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.
- Reputation: A car that's built to last will hold its value more than a model that has an unofficial reputation for breaking down or is constantly in the news for recalls.
Those are just a few things to consider when evaluating your own set of wheels.
How Quickly Do Cars Drop in Value?
OK, while there are many factors that go into how and why cars depreciate, there's one thing that is almost always true no matter what type of car you buy: New cars depreciate much faster than used cars do. How much faster? Let's just say we hope you have your seat belts on.
- AFTER ONE MINUTE: A brand-new car loses somewhere between 9–11% of its valuethe moment you drive off the lot.So, with a $30,000 new vehicle, you're basically throwing $3,000 out the car window as you drive the car home for the first time!
- AFTER ONE YEAR:Research shows that new cars suffer 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 bought it for.
- AFTER FIVE YEARS:After that steep first-year dip, that new car will depreciate by 15–25% every year until it hits the five-year mark. So, after five years, that new car will lose around 60% of its value. 2 , 3
| Initial Car Value | $30,000 |
| New Car Value After . . . | |
| 1 minute | $27,000 |
| 1 year | $24,000 |
| 2 years | $20,400 |
| 3 years | $17,340 |
| 4 years | $14,740 |
| 5 years | $12,530 |
What Kind of Cars Depreciate the Most (and the Least)?
While all new cars drop in value at an alarming rate, some makes and models hold their value better than others.
Research shows that pickup trucks and Jeeps generally depreciate the least within the first five years of ownership, while luxury sedans and electric vehicles lose the most value during that same time frame.4 And brands like Toyota and Honda, with a strong reputation for reliability and durability, often get high marks when it comes to holding their value.
Here's a list of some of the vehicles with the highest and lowest rates of depreciation in 2019:5
Top 5 Vehicles With the Lowest Depreciation
| Rank | Model | Average 5-Year Depreciation |
| 1 | Jeep Wrangler/Wrangler Unlimited | 27.3% |
| 2 | Toyota Tacoma | 29.5% |
| 3 | Toyota Tundra | 37.1% |
| 4 | Nissan Frontier | 37.8% |
| 5 | Toyota 4Runner | 38.1% |
Top 5 Vehicles With the Highest Depreciation
| Rank | Model | Average 5-Year Depreciation |
| 1 | Nissan Leaf | 71.7% |
| 2 | Chevrolet Volt | 71.2% |
| 3 | BMW 7 Series | 71.1% |
| 4 | Mercedes-Benz S-Class | 69.9% |
| 5 | Ford Fusion Energi | 69.4% |
There are pros and cons to buying a car on either end of the depreciation spectrum. On the one hand, cars that hold their value really well will be easier to resell for a higher price, but they're also 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, as you research different cars you might want to buy, don't forget to factor in their different rates of depreciation and why they lose so much (or so little) value—before signing on the dotted line.
A brand-new car loses somewhere between 9–11% of its valuethe moment you drive off the lot.So, with a $30,000 new vehicle, you're basically throwing $3,000 out the car window as you drive the car home for the first time!
How to Know What Your Car Is Worth
At this point, you're probably wondering how much of an impact depreciation has made on your car since you bought it. The good news is that websites like Kelley Blue Book and Edmunds can give you a good idea of how much your car is worth if you sold it 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.
After that steep first-year dip, that new car will depreciate by 15–25% every year until it hits the five-year mark.
How to Reduce Your Car's Rate of Depreciation
Unfortunately, car depreciation is inevitable. But the good news is there are some steps you can take to slow down the process.
1. Keep your car's mileage down.
According to the United States Department of Transportation Federal Highway Administration, Americans drive around 13,500 miles per year.6 That breaks down to more than 1,000 miles every month!
Now, we don't expect everyone to bike to work every day (think about all those calories you'll burn, though). 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.
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.
Like we mentioned earlier, new cars lose their value at a much faster rate thanused cars do. That's why the very best way to buy a car is to save up and buy a reliable, slightly used car with cash.
There's a reason why the average millionaire drives a four-year-old car with 41,000 miles on it. By buying used cars, they let someone else bear the brunt of a new car's rapid depreciation in its first few years. And they still end up with a reliable car that'll run for years and years with proper maintenance. Smart!
Don't Forget About Car Insurance
Not only do new cars depreciate faster, but they're also more expensive to insure. In fact, you can save up to 12% on car insurance by buying a five-year-old car instead of the shiny new model.7 Those savings could keep hundreds of dollars in your pocket each year!
That's why we recommend teaming up with one of our insurance Endorsed Local Providers (ELPs). Whether you're in the market for a new car or you plan on driving Old Faithful for many years to come, they can help you find the right coverage at the best price.
Find an independent agent today!
About the author
Ramsey Solutions
Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.
How Much Value Is Lost on a New Car
Source: https://www.ramseysolutions.com/saving/car-depreciation
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