How Vehicle Depreciation Works and How It Affects Your Car's Value

How Does Vehicle Depreciation Work?

Depreciation is the largest factor that impacts the value of your car. First, let’s define what vehicle depreciation is. Vehicle depreciation is, simply put, the rate at which your vehicle will lose value as time passes. It’s important to know that, with the exception of some limited production, immediately collectable examples, all vehicles depreciate over time—there’s simply no way around it. But while every car loses value over time, the rate at which a car depreciates varies by vehicle. It is largely impacted by age, mileage, make, and model of the vehicle in question.

Vehicle Depreciation of New Cars

Unfortunately, new vehicles depreciate faster than used vehicles. A newly purchased vehicle immediately loses 10% of its value the moment you drive it off a dealership’s lot. It can lose another 10% to 20% by the end of the first year of ownership. And afterward, you can expect a 15% to 25% depreciation year over year. Some sources state that a new car may depreciate up to 60% in value by the fifth year of ownership. However, other sources state that a car may reach this same depreciation value as early as the third year of ownership. ​

Keep this in mind if you plan to sell your new vehicle within five years of buying it. You will likely have lost a significant portion of the vehicle’s initial value by that point in time.

Vehicle Depreciation of Used Cars

A used vehicle depreciates just like a new one. However, choosing to buy a car that is a year old could save you 20% to 30% of the vehicle’s original MSRP (manufacturer’s suggested retail price). If you buy a car that’s older than one year, your saving’s will increase even further—it will retain a value closer to what you paid for it, should you choose to sell it later.

Vehicle Depreciation of Leased Vehicles

Leasing a vehicle is also an interesting option, as the dealer includes the projected depreciated value in the lease price. It also has a set buyout price at the end of the lease, which means that, should you choose to buy it, you might make a profit by selling it afterward. This may be the case if the buyout price is lower than the vehicle’s present value. Additionally, you can return the car to the dealership a once the lease is up and you will not have to worry about the vehicle’s depreciation rate at all!

​ Now that you know how vehicle depreciation works, you can better understand why you shouldn’t trade-in your car. As such, if you’re ready to get rid of your vehicle, contact the Don’t Trade It In team.

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