How much does a car depreciate per year? Percentage and factors
In all the excitement of buying a new car, it’s important to keep in mind that its value will begin to decrease from the moment it leaves the dealership.
Very few are immune to the thrill of buying a new car: the excitement of driving a brand-new vehicle, inhaling that new car smell, and fiddling around with the latest technology, are sensations that are hard to match.
But an unavoidable reality comes with that very special moment when you receive the keys to your new ride. From the moment you become the official owner of the vehicle, its value begins to decrease.
As days, months and years go by, your car’s value will go down even further. This decrease in value varies depending on several factors, although all vehicles suffer some degree of annual depreciation.
The impact of depreciation after leaving the car dealership
To begin with, a car experiences a big loss in value right after it leaves the dealership. According to financial services company Bankrate, new cars typically lose their value faster than older ones, with brand-new vehicles believed to lose at least 10% of the value the moment the new owner drives off the dealer’s lot.
This is because once a car is no longer “new,” its value on the used car market is already significantly lower. It doesn’t matter if the vehicle is in perfect condition, without a single scratch, or if it has only traveled a few miles: the market considers it a used car, and therefore its price falls.
Cars also depreciate at a much faster rate during the first five years of ownership.
Within the first year, majority of vehicles will lose up to 20% of their value, according to auto insurance company Progressive. In subsequent years, the cars are likely to lose approximately 15% of their worth each year until it becomes four or five years old.
From the sixth year onwards, the annual depreciation starts to be lower, stabilizing between 5% and 7% per year. However, the residual value of the car at that point is already considerably lower compared to its original purchase price.
This doesn’t mean that all cars depreciate at the same rate. Make, model, demand, and even color popularity all play a role in how much a car loses its value.
Factors influencing devaluation
Although depreciation is inevitable, not all cars lose value at the same rate. here are some factors that can influence a car’s value over the years.
Brand and reputation
Car brands known for reliability, such as Toyota or Honda, tend to retain their value better. These vehicles, due to their reputation for durability and low maintenance costs, tend to depreciate more slowly than other, less reliable brands.
Market demand
Popular or trendy models tend to hold their value better. For example, SUVs and pickup trucks have gained popularity in recent years, so their depreciation is slower compared to sedans or compact cars that have lost ground in buyers' preferences.
Mileage
The more miles a car has, the lower its value. A car with high mileage tends to wear out more quickly, which reduces its value in the used car market.
General condition
Cars that have been well maintained and have not had any serious accidents or significant repairs will retain their value better. The appearance of the vehicle, both inside and out, also plays a role. A car that looks brand new, even after several years, may depreciate more slowly.
Technology and features
Vehicles with more advanced technologies can actually lose their value faster. Features that were cutting-edge five years ago, such as infotainment systems or driving assistants, can quickly become obsolete, negatively affecting the value of the car.
Models that depreciate faster
There are cars that, due to their nature or the market’s perception of them, depreciate more quickly. For example, luxury cars are known to lose value at an accelerated rate.
Although these vehicles have a high purchase price, their value in the used car market falls dramatically due to high maintenance costs and low demand.
Similarly, electric cars, although gaining in popularity, tend to depreciate quickly. This is because technology in the field of electric cars is advancing so rapidly that a model from three or four years ago may seem outdated compared to new releases.
How to minimize the depreciation of a car
Although it is impossible to stop depreciation, it is possible to reduce its impact with some practices. Keeping the car in good condition, performing regular maintenance and avoiding serious accidents are some of the ways to protect the value of the vehicle.
It is also advisable not to make significant modifications that could depreciate the car on the resale market. For example, adding non-original parts or modifying the sound system in an extreme way can cause the car to lose value instead of gaining it.
Choosing the right time to sell is crucial, as this can help to maximize the resale value. It is good practice to change your car every three to four years, before the car loses more than half its value.