What Is Car Depreciation, and Why Does It Matter?
New vehicles lose value quickly, and knowing why can help save you money.
Capital One
Originally published on March 27, 2018
Article QuickTakes:
Benjamin Franklin famously wrote: “in this world nothing can be said to be certain, except death and taxes.” But if Ben were alive in the age of the automobile, he might have added depreciation to his list.
What is car depreciation exactly?
It’s a term to describe how much value your car loses over time.
Why should car depreciation matter to me?
Cars depreciate quickly, often as much as 20-25% their first year. The downward spiral continues at a more moderate rate from there, as vehicles age, add mileage, and absorb wear and tear.
Depreciation is the biggest factor affecting the long-term value of your car and the total cost to own it. And if you borrowed money to buy the vehicle and decide to sell it after a few years, you might be upside down on the loan, or owe more money than the car is worth.
Market conditions also play a role in depreciation. For instance, SUVs and trucks are typically in higher demand and thus hold their value better than others, which pays dividends when it’s time to sell.
Kelley Blue Book recently released its annual list of cars with
What can I do to limit the costs of car depreciation?
Buying a used car can blunt the effects of depreciation somewhat, because the previous owner(s) will have absorbed the biggest drop in value during the vehicle’s first few years. (Here are several strategies for finding the depreciation sweet spot on used cars.)
