We’ve all heard that cars lose their value as soon as you drive them off the dealer’s lot. While this idea is mostly commentary on the high cost of new cars, there’s some truth to it. A car will depreciate and lose value over time.
Unfortunately, that process happens to vehicles very quickly. You can use a car depreciation calculator to get a sense for its impact on the value of your car, truck or SUV. You can even take some steps to reduce the impact over time.
First, let’s take a closer look at car depreciation: what it means, why it happens and how it affects your car’s worth—especially if you’re looking to trade it in to get a new vehicle.
What is car depreciation?
A car’s value fluctuates over time, but a good rule of thumb is that it will never be worth more than it is right now. Some vehicles—such as collector cars or sports cars—can rise in value over time due to their rarity. However, most average makes and models lose value as they age. This is called “depreciation.”
The true definition of car depreciation is the loss of value over time. Your car was worth more when you bought it, and as time goes on, its value goes down (depreciates). Time is almost always a factor, but the rate of depreciation can be accelerated due to factors such as wear and tear, or outdated technology and safety features.
How do you calculate a used car’s value?
There are several different ways to determine the current value of a vehicle. A widely used approximation of a car’s value is the Kelly Blue Book price. That’s the estimated market value of a used car depending on factors such as year, make, model and condition.
However, other factors and situations can change how a car is valued. Here are some common scenarios that could result in varying vehicle valuations:
- Private party value: The amount you can expect to receive from a private sale.
- Trade-in value: The amount a dealership will offer if you trade it in for another vehicle.
- Retail value: The cost a dealership will sell the car for after they’ve acquired it.
- Sale price: The cost a buyer actually pays for the car after any negotiations.
Your car’s value will also change based on supply and demand. For instance, in 2021-22, some used cars were more expensive than new models due to supply chain issues.
Ultimately, it’s important to remember that value is almost always driven by demand—as in, what someone is willing to pay for an asset. To get a general sense of a used vehicle’s average current resale value, use a car depreciation calculator.
What factors affect a car’s value?
Beyond supply and demand, there are several factors that determine the value of a vehicle. Here’s a quick overview of the most significant factors:
- Age and mileage. More mileage means more wear and tear, which translates to loss of value. Plus, as cars get older, their technology becomes more outdated, which decreases their value. Properly maintaining a car can help counteract age and mileage to keep its value relatively high.
- Condition. A well-maintained, clean car in excellent condition will have a higher value than a run-down car with significant performance issues. Regular scheduled maintenance—including oil changes and tire rotations—can help maintain a car’s value. Damage will always result in a loss of value, so have repairs done by a reputable professional right away to minimize the impact.
- Vehicle history. A vehicle history report is essential when buying or selling a car. These reports can reveal many issues from major accident repairs to concerning title issues. A clean history report can give buyers some peace of mind and can also help increase the car’s value. Even proof of maintenance, such as shop receipts, can push a car’s resale value higher.
- Features and upgrades. Common desirable features such as sunroofs, navigation systems and heated seats add value. Even the color of a car can have an impact on its resale value. Keep in mind, however, that not all “upgrades” offer equal value. Some aftermarket customizations might actually decrease a vehicle’s value if there isn’t a buyer’s market for them.
Some vehicles are less desirable as well because of the costs associated with them. Buyers can be turned off by expectations of high insurance rates, expensive trips to the gas station or a big tax bill due to a higher sticker price.
As with any asset, a good rule of thumb is “you get what you pay for.” It’s no surprise that a well-cared-for car with fewer miles on it will be worth more than one with an accident history, neglected maintenance and high mileage.
New car depreciation examples
When it comes to buying a brand-new car, it’s important to look at it as an investment that’s going to lose value. The question is, how much will it depreciate as the miles on the odometer climb higher?
Let’s take a look at car depreciation examples for vehicles with the lowest depreciation (held the most value) and highest depreciation (lost the most value) over a 5-year period, according to a 2022 study by iSeeCars:
According to iSeeCars, which analyzed more than 3 million used vehicles in 2022, the average 5-year-old car lost about 33 percent of its value off its MSRP. That’s an improvement over years past, which iSeeCars attributes to the high demand for used cars during the pandemic-induced supply-chain shortages.
Top 5 Models With the Lowest Depreciation Over 5 Years
|Rate of Depreciation
|Jeep Wrangler Limited
Top 5 Models With the Highest Depreciation Over 5 Years
|Rate of Depreciation
|BMW 7 Series
|Cadillac Escalade ESV
How can I find out what my car is worth?
If you’re getting ready to trade in or sell a car, you’ll want to know what it’s worth. Likewise, if you’re getting ready to buy a used car, it’s smart to know the full range of price points you can expect to pay. A little research goes a long way in making a sound financial transaction.
Kelly Blue Book is a good place to find an objective valuation of a vehicle. However, that’s just the first step. You’ll also want to check out dealerships and online listings to get a sense of the retail and private-party costs associated with that make and model. If you’re selling, inquire about a ballpark trade-in value.
There are plenty of other online tools that can give you an estimated value, including TrueCar, available through Navy Federal’s Car Buying Service, powered by TrueCar®.1
Tips to reduce car depreciation over time
Although there’s little you can do to stop depreciation, there are ways to help your vehicle retain value over the life of your ownership:
- Buy a car with a reputation for retaining its value. This typically includes popular models and brands that tend to be in high demand. Look for cars, trucks and SUVs that are popular, highly rated, and reputable, and will hold up well over time.
- Take good care of your car. Interior and exterior upkeep are great ways to maintain your investment. Regular maintenance—such as oil changes and tire rotations—can help prolong the life of your car and keep it in good condition. Repairing any damage and keeping it clean will also help preserve some resale value.
- Consider your driving habits. You can’t control time, but you can control mileage. The less wear and tear you put on a vehicle over time, the better your chances of it being valued at a higher price. Keep track of how many miles you’re putting on the odometer every month, and limit trips when possible.
The best way to reduce the impact of depreciation? Buy used! Used vehicles sell for less than new cars because they’ve already depreciated. That means more of your dollars go toward the equity in the asset, as opposed to value that will evaporate quickly over the next few years.
Get more value out of car ownership
The fact is, vehicles are one of the fastest-depreciating assets you can buy. However, for most people, a car is essential for everyday life. The dollar value of your vehicle really only matters when you’re buying or selling. The rest of the time, focus on the value you get from owning your car.
Through our Car Buying Service, powered by TrueCar®, you can get access to what prices others have paid on vehicles you’re researching, and get trade-in offers quickly from TrueCar-Certified Dealers.2 3
And, you’ll feel good about signing on the dotted line with preapproval on a Navy Federal auto loan, which can help arm you with what you need to negotiate with your car dealer for a great purchase price.
TrueCar operates the Navy Federal Car Buying Service. Navy Federal is not responsible for any purchase, lease, or service provided by or through the Navy Federal Car Buying Service.↵
Terms and conditions apply and are available at the Car Buying Service website, hosted by TrueCar.↵
TrueCar Certified Dealers are contractually obligated by TrueCar to meet certain customer service requirements and complete the TrueCar Dealer Certification Program.↵
CARFAX is a registered trademark of Carfax, Inc.
This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.