Car depreciation rate probably isn’t the first thing that you think about when purchasing a car. In fact, it usually isn’t a concern until it's time to sell your vehicle.
However, even if you are not in the market to sell your car right now, it's a good idea to know what it means in the event that you do sell. It's also smart to have a sense of how long a car will last when you buy one.
Here's what you should know.
So what does "car depreciation rate" mean?
In simple terms, depreciation is the reduction in the value of an asset over time.
Depreciation on a car, specifically, is known for its significant depreciation the moment it is driven off the lot. On average, a car will depreciate more than 20% within the first year of ownership.
Although the full impact of your car’s depreciation isn’t realized until you sell it or trade it in, it should be at the front of your mind during your purchase. Yes, a car is an asset, but it is a depreciating asset affected by years of ownership and other factors.
Knowing more about this and how you can reduce it will allow you to make a more informed buying decision.
What impacts the car depreciation rate?
You determine the rate of depreciation by several factors. These include the car's make and model, mileage, and overall condition.
Here’s what you should know about these things.
A car’s condition takes into account its upkeep and general appearance. Therefore it includes wear and tear of mechanical parts, the interior, and any exterior damage to the vehicle.
A vehicle’s condition can be categorized as poor, fair, good, very good, or excellent. Here's how these conditions are graded:
- Poor: Severe mechanical problems and cosmetic defects; it typically cannot be fixed.
- Fair: Requires repair and has cosmetic defects.
- Good: No mechanical issues with minor, repairable cosmetic defects.
- Very Good: Excellent mechanical condition with minor cosmetic defects.
- Excellent: Practically like new.
Ultimately, a car that you take care of well can avoid losing some of its value and have a better rate.
Mileage in and of itself does not cause depreciation on a car. Instead, it is the wear and tear of constant driving and usage that makes it lose its value.
Each time you drive, the mechanical parts of your car degrade. They become worn down and, as a result, slowly worsen the condition of your car.
The reduction in value from usage is the reason that used cars are far less expensive than new vehicles.
Make and model
The make and model also have a significant impact on a vehicle's depreciation. Because some brands make generally more reliable vehicles.
If a specific make and model is known for its quality and durability, it will hold its value much better than a vehicle that is known to break down quickly.
Least depreciating cars
Before you buy, you should know what types of cars tend to last the longest and which do not retain their value.
This list of vehicles from Auto Guide ranks the top 10 cars that hold their value over time, meaning they offer the lowest depreciation rate. So the least depreciating cars are:
- Jeep Wrangler
- Jeep Wrangler Unlimited
- Porsche 911
- Toyota Tacoma
- Toyota Tundra
- Ford Mustang
- Chevrolet Corvette
- Chevrolet Camaro
- Dodge Challenger
- Toyota 4Runner
If buying a new car is in your future plans, and you want to know what will be the best deal over time, you should consider one of these lowest depreciation options.
Fastest depreciating cars
Not every car holds its value well. Some of them decrease faster than others. According to US News, these are the fastest depreciating cars:
- BMW 7 Series
- BMW 5 Series
- Nissan Leaf
- Audi A6
- Maserati Ghibli
- Mercedes-Benz E-Class
- Volvo S60
- Mercedes-Benz S-Class
- Lincoln MKZ
- BMW X3
Notice that many of these vehicles are from luxury brands. While they might seem great for a while, they may not be worth the hefty price tag in a few years.
Leverage a car depreciation calculator
Depreciation on a car can seem a little tricky to calculate. After all, there are so many factors that come into play. Ultimately, you want to calculate the difference between what you paid and the car’s current fair market value.
The good thing is that you don’t have to worry about the math. In fact, you can find a car depreciation calculator that can help you determine your vehicle’s value.
Use the following calculator options to help:
State Farm calculator
You can use this car depreciation calculator to see how much you will lose in value after the first year and over the time that you own your car. It's simple and will give you a quick answer.
An advanced depreciation calculator that is a bit more detailed. It includes things like make and model to help you get an accurate idea of value.
The Omni Calculator for car depreciation is one of our favorites. It lets you know the value of your vehicle after 1 year, 2 years, 3 years, etc.
Key tips to minimize car depreciation rate
Though depreciation is inevitable, there are things you can do to minimize how much your car depreciates. Here are some tips to help you maintain your car’s value.
Invest in cars that hold their value
The best way to minimize depreciation is to buy smart. This means purchasing cars that hold their value. You can start by considering the top vehicles with the best resale value listed by Kelley Blue Book.
If none of them appeal to you, you can always research the resale value of the vehicle you like to determine the average rate and if it is worth the purchase.
Buy a used vehicle
When you’re trying to decide what car you should buy, consider used vehicles as an option instead of a brand-new car.
A used vehicle has already lost some of its value, so you reap the benefits of a reduced price. Buying used makes car-buying more affordable.
According to Lending Tree, the average monthly car payment for a new car is $644 versus $488 for a used one. The difference that you save can be put toward other things in your budget—including paying off debt or saving.
Lease your vehicle to avoid car depreciation rate
If you want to avoid depreciation altogether, you may choose to lease a car instead of owning it. Leasing is essentially renting a car for a certain amount of miles and time period.
This mode of transportation does come with stipulations. So before you sign the dotted line, review your options to determine if you should lease or buy a car.
Keep up with scheduled maintenance
Since a car’s condition is one of the primary factors for determining its value, taking care of your vehicle is of utmost importance. This means that you should plan a maintenance schedule for your car.
You’ll want to include oil changes, tire rotations & replacements, and tune-ups (always be sure to add these fees to your budget). Creating a car sinking fund is a great way to save up for these expenses.
Also, be sure to keep a record of your car’s maintenance as a part of your vehicle’s important documents.
Limit the mileage
Extensive traveling can increase and accelerate the wear and tear of your automobile. To reduce this, consider integrating carpooling, public transportation, or walking as a part of your weekly routine.
These small reductions in usage can make a significant difference in the life and value of your car.
Other things to consider when you purchase a car
As you can see, there’s much more to buying a car than what meets the eye. Fuel economy, safety, and price are all important factors when buying, but so is how fast the car will depreciate.
It’s also good to remind yourself that a car has ongoing costs. So, consider these tips to save on car expenses.
Understanding how car depreciation rate works can help you save money!
Now you know about all your options, including the least depreciating cars and the fastest depreciating cars. Be sure to take great care of your car and be mindful of the mileage and maintenance in order to retain its value.
A reliable car is a good purchase, and the chance to resell by buying one with the least depreciation could be one of your smartest financial decisions.