How Much Does a Car Depreciate per Year?

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

Sponsored By

When you drive a new car off the lot, it automatically loses value. This pattern, which continues over time as you drive the vehicle, is known as depreciation. But the amount by which a vehicle depreciates varies. Read on to learn more about how car depreciation works and tips to preserve your vehicle’s value. 

Refinance Your Auto Loan

What is Car Depreciation?

Simply put, vehicle depreciation is the difference between what the car is worth and the original value or what you paid for it. Unless you own a collectible or classic car, your vehicle will lose value or depreciate over time. 

On average, the depreciation rate is between 15 and 20 percent for most vehicles. However, it varies by your car’s age, make, model, mileage and condition. 

How Quickly Do Cars Depreciate?

Right After Buying It

Unfortunately, cars lose value the moment they’re purchased and driven off the lot. 

After a Year

Most vehicles lose up to 20 percent in their value after the first year following production. 

After Five Years

The depreciation rate drops to roughly 15 percent on average between years two and five. 

After an Accident

Accident-free vehicles are generally worth more than those that are the same make and model but have been involved in an accident. 

What Causes a Car to Depreciate?

The Car’s Age

With age comes a dip in the car’s value. 

Mileage

Cars with higher mileage also drop in value as the need for repairs becomes more likely. 

Make and Model

Select manufacturers, like Honda and Toyota, generally come with lower depreciation rates than others. 

History of Ownership

Owners who keep up with routine maintenance and repairs are more likely to command a higher resale value than those who don’t. 

The Car’s Condition

Cars that are well-maintained typically won’t depreciate as fast as those with owners who failed to keep the exterior in good shape and have routine maintenance completed. 

Fuel Price

Many buyers focus on fuel efficiency when shopping for a new car or truck. However, if the average miles per gallon are on the lower end, some consumers tend to shy away, decreasing the demand for a particular vehicle. Consequently, some of these vehicles also tend to depreciate at a far more rapid rate than others. 

The Car’s Color

That shiny paint job may turn heads when you’re cruising down the highway, but it can mean bad news for your car’s value. So, skip the bright colors and stick with neutral colors instead to help preserve the resale value of your ride. 

Refinance Your Auto Loan

How Do You Estimate Your Car’s Depreciation?

Use a car depreciation calculator or the following formula to determine the estimated depreciation of your vehicle: 

  • Purchase price * Average five-year depreciation rate = Annual depreciation

To illustrate, assume you purchased a Toyota Tacoma for $28,500, and the average five-year depreciation rate is 13.8 percent. Using the formula above, your vehicle will lose roughly $3,933 in value each year. At the end of year five, it’ll be worth $8,835.

Does a Car’s Depreciation Affect Your Loan?

Are you considering refinancing your current loan to get better terms? Even if it’s depreciated quite a bit, you may still be able to get a new loan if you’re not upside on the loan (or owe more than it’s worth). 

Consider Auto Approve, an online platform that simplifies the refinancing process and helps you access lower monthly payments on your car loan. You can get a free rate quote in minutes without impacting your credit score to determine if your car is eligible for refinancing. 

Interest rates from banks and credit unions in the Auto Approve network start at just 2.94 percent. Even better, Auto Approve will handle the paperwork for you if you find a loan product that works for you and choose to move forward with refinancing your ride

Tips to Minimize Your Car Depreciation

Reduce Your Mileage If You Can

If possible, aim to keep your annual mileage at or below 14,000 so it doesn’t exceed the national average. Otherwise, you risk depreciating your car at a faster rate. 

Keep Your Maintenance Up-to-date

Even if it’s costly, have routine maintenance done in a timely manner, and be careful not to overlook or ignore vital repairs. Doing so can help you earn more money for your car when it’s time to sell it, and you can prove it’s been properly maintained. 

And Keep the Records

Store all vehicle-related records in a safe place. That way, you can retrieve them at any time if you need to file a warranty claim or a prospective buyer wants to take a look. 

Minimize Customizations

Add-ons are visually appealing but can make your car less marketable when it’s time to sell it. 

Always Keep Your Car Clean

A well-maintained car is less likely to have loads of exterior damage, like dings or dents, over time. And if they are present, be sure to address them right away. Aim to wash and wax your car often or hire someone to do it for you. 

Don’t Eat or Smoke in Your Car

It’s equally important to maintain your vehicle’s interior, starting with regularly vacuuming to keep it clean. Also, refrain from eating and smoking in your car to help prevent unwanted stains and odors that are challenging to get rid of. 

Auto Approve

You may also like

Learn how a vehicle service contract covers costly repairs so you can keep more of your hard-earned money in your pocket.
Read more

Advertisement Disclosure

Product name, logo, brands, and other trademarks featured or referred to within Banks.com are the property of their respective trademark holders. This site may be compensated through third party advertisers. The offers that may appear on Banks.com’s website are from companies from which Banks.com may receive compensation. This compensation may influence the selection, appearance, and order of appearance of the offers listed on the website. However, this compensation also facilitates the provision by Banks.com of certain services to you at no charge. The website does not include all financial services companies or all of their available product and service offerings.