Car Depreciation Rate: Everything You Should KnowJanuary 23, 2021
It’s common knowledge that once you drive a vehicle off a car lot, it takes a significant and immediate nosedive in value. But is this an urban legend or based in actual reality? In other words, how much does a car depreciate after you leave the lot?
According to one of the most trusted sources out there, Edmunds’ Research, the average automobile will drop in value to 91 percent of its True Market Vale (TMV) the moment you rev up the engine and head out.
Why is this car depreciation so steep? And what does it mean for you as a car owner? Let’s take a closer look at car depreciation and what you need to know about its impacts on your ride.
What is a Car Depreciation Rate?
It doesn’t seem fair when you stop and think about it. You’ve just spent your hard-earned bucks on a new set of wheels, and the moment you start using it, it drops significantly in value. Why does this take place and how does it happen so quickly?
For starters, the perception of the vehicle changes the moment you purchase it and take ownership of it. In other words, it goes from being a new to used vehicle in a matter of moments.
Since others no longer see it as a new vehicle, it instantly loses nine percent of its True Market Value. Talk about an expensive one-minute ride!
While this doesn’t make much sense logically, there’s no denying its truth. After all, human beings aren’t always the most rational creatures, especially when it comes to purchases. We often go with our gut feelings, and these feelings can prove more expensive than you might think, especially when it comes to car value depreciation.
Once you’ve gotten over the nine percent drop in value, your car should be good to go for the first year, right? Not really. Let’s discuss this further.
How Much Does a Car Depreciate Per Year?
Many consumers assume that once a vechicle experiences its initial car depreciation, it should remain at a steady valuation for at least the first year of ownership. Unfortunately, these car owners are in for an unpleasant surprise. A car depreciation calculator tells us otherwise.
During the first year of ownership, your car will continue to depreciate, plummeting in value to 81 percent over the first 12 months. One factors that dictate just how low your automobile’s value will go is mileage. Depreciation also impacts different makes and models to varying degrees. That’s why you should use a car depreciation calculator by model.
That said, for the intents and purposes of this article, let’s focus on trends based on an average car’s valuation.
What Is a Good Depreciation Rate for a Car?
At this point, you’re likely wondering what’s a good depreciation rate for a car. To get a better sense of this, we need to continue looking at a vehicle’s lifespan after the first year.
At the end of year two, the average vehicles’s depreciation speeds up. By the end of the first 24 months, your ride sits at approximately 69 percent of its original value.
In other words, expect to see your car continue to depreciate by 12 percent over the second year. Put another way, your car will lose about one percent of its value each month during the first two years.
What does this mean if you’re paying off a car loan? Imagine you’ve agreed to $395 per month for your vehicle. At the same time, your car will be dropping in value approximately $400 per month.
For this reason, you must look at a car as an expense rather than an asset.
How Do You Calculate Depreciation on a Car?
As we move forward with this timeline, you should be aware of how to calculate car depreciation. If you’re in a vehicle lease, it’ll expire by the third year. For this reason, most pickups, SUVs, minivans, and cars come onto the market as used sales within 36 months.
Unfortunately, you as the owner will get some bad news at this point. That car you spent thousands of dollars for will now be valued at approximately 58 percent of its original value. Talk about significant car depreciation!
Of course, that’s just an average estimate. You must also be aware of the model because each one performs differently when it’s all said and done.
Cars That Depreciate Most Rapidly
Which makes and models depreciate most quickly? They include:
- BMW 5 Series at 52.6 percent
- Volkswagen Passat at 50.7 percent
- Mercedes-Benz E-Class at 49.9 percent
- BMW 3 Series at 49.8 percent
- Ford Taurus at 49.7 percent
- Chrysler 200 at 48.4 percent
- Volkswagen Jetta at 48.1 percent
- Audi A3 at 47.9 percent
- Cadillac SRX at 47.2 percent
- Buick Enclave at 46.8 percent
In other words, one of the most important factors when it comes to calculating car depreciation is understanding how different makes and models perform over time.
At this point, you may have noticed something about the list above. There are no Japanese models that make the list. So, if you want to avoid vehicles that depreciate most rapidly, consider going with vehicles made by Japanese automakers.
Cars That Depreciate Most Slowly
Which car makes and models depreciate most slowly? They include:
- Toyota Tundra at 37.1 percent
- Nissan Frontier at 37.8 percent
- Toyota 4Runner at 38.1 percent
- Chevrolet Silverado 1500 at 39.7 percent
- GMC Sierra 1500 at 39.9 percent
- Subaru Impreza at 42.3 percent
- Ram Ram Pickup Truck 1500 at 42.7 percent
Why this discrepancy between car manufacturers? Because Japanese automaker’s have earned a well-deserved reputation for crafting reliable cars that stand the test of time.
As for German and American car manufacturers, these vehicles may be popular. But they also require more repairs and maintenance over time.
What Is the Formula of Depreciation?
Once you reach the four-year mark with a car, depreciation rates reach a True Market Value low of 49 percent. In other words, by year four, your car has lost approximately half of its value. That’s a significant loss considering how much vehicles cost.
Of course, if you’re one of the unlucky souls that opted for a German or American car, expect to reach the halfway mark on your car’s value by year three.
And once you get five years down the road? Your car will be worth approximately 40 percent of its original value. As you may be starting to realize, there’s a pattern to this. Your car will see a drop in value of about 10 percent each year.
Unfortunately, this drop of ten percent per year doesn’t slow down. By year nine, your car’s worth almost nothing. By the time you hit the ten-year point, your vehicle’s value has hit rock bottom. Sure, you can still sell your ride and make some money, but sales at this point remain buyer beware.
How Much Do Cars Depreciate When New Models Come Out?
As you’re beginning to see, it’s all about being the newest car on the block when it comes to maintaining value. For this reason, when auto manufacturers introduce new models of their vehicles, you can expect prices of older models to drop even further.
While the initial impact may be insignificant at first, prices will continue dropping once the new models hit the showroom floors. That’s because car lots want to make way for the newest models.
The ultimate impact on prices will depend on whether the latest models include major changes. It will also depend on how attractive these changes prove to consumers. When there’s a major redesign, consumers recognize this, and it impacts the depreciation of older models even more.
Of course, there are other outside factors, which may impact how far prices drop. These include media coverage of the new models and whether or not its’ positive or negative. Good publicity leads to excited customers and falling prices on outgoing models.
That said, this decline will likely be by no more than two to three percent over the first few weeks. When there are higher inventories, however, prices will drop even more rapidly.
How to Slow Car Depreciation
What can you do to stop your car’s depreciation? Not a lot. That said, you can slow the process by being aware of some of the factors that impact vehicle valuations.
First off, take excellent care of your vehicle. Stay proactive about avoiding unnecessary wear and tear. That means relying on the services of an experienced auto transport company to move your vehicle, for example, if you’re involved in a major move.
Besides avoiding putting extra mileage on your car, you should also stay on top of scheduled maintenance and services. Your car’s owner manual will provide you with an outline of when you should get which services. This will include everything from brake replacements to oil changes.
If you follow the recommended guidelines to a tee and can prove it, you’ll be able to ask more for your vehicle. Remember with reports such as Carfax, it’s never been easier to demonstrate that you take excellent care of your vehicle and have kept maintenance timely.
Make sure that you always work with a qualified mechanic. And stay on schedule even if your car seems to be running beautifully. Remember, you want to be proactive instead of reactive when it comes to maintenance.
You should also bear in mind that your car will maintain its value much better when old and dirty parts get swapped out for new ones.
Stay on Top of Car Maintenance and Issues
Besides regularly handling oil changes, tire rotations, assignments, and brakes pad replacements, you should also stay hyper-aware of changes in your car’s appearance or performance. If you notice that something sounds or feels different, don’t wait for the problem to manifest.
Instead, get it into a reliable and experienced mechanic to make sure everything’s in good working order. You should also pay attention to changes such as dips in gas mileage, engine lights, and anything else that might indicate malfunctions or declines in performance.
If you remain proactive when it comes to caring for your vehicle, it will pay off in the long run. After all, a little extra care and attention at the right time, will help your car stay in its best working order. This also means keeping your vehicle clean on the inside and out.
You should store it in a garage so that it’s shielded from the elements. And don’t neglect the interior. Regular detailing services will help you keep your vehicle pristine.
Keep Tabs on That Mileage
You should also remember that your car’s odometer doesn’t lie. And these numbers matter when it comes to potential future car owners.
The more miles on your vehicle, the less people will want to pay for it. Of course, your car won’t be of any value to you if you don’t feel that you can drive it. But there are still ways to minimize mileage.
For example, when your’e going on a road trip, consider renting a vehicle instead of driving your own. As already mentioned, you should also go with an auto transport company when relocating your car or moving your household.
There’s no better way to protect your car from excess mileage, wear and tear, and potential damage.
Car Depreciation Rates and Your Vehicle
As you can see, there are a variety of ways to protect your car from depreciation. Nevertheless, there are some factors that you have little control over. So, be careful when selecting your next make and model of vehicle.
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