How Car Depreciation Works and Why It Matters

Depreciation isn't something most car buyers think about at the time of purchase. But it should be, because depreciation is almost always the single largest cost of owning a vehicle — more than fuel, insurance, or maintenance. A $40,000 car that's worth $24,000 after five years has cost you $16,000 in depreciation alone. That's $3,200 per year, or $267 per month, in invisible cost.

The Depreciation Curve

New cars don't depreciate in a straight line. The curve is steep at first and flattens over time.

A typical new car loses about 20% of its value in the first year. That $40,000 car is worth roughly $32,000 after 12 months — a $8,000 loss for one year of ownership. By the end of year two, it's lost about 30% total ($28,000). By year five, about 45% ($22,000). By year eight, about 55% ($18,000).

This curve is why buying a two-to-three-year-old used car is often the best financial decision. The first owner absorbs the steepest depreciation, and you buy at a point where the rate of loss per year has already moderated significantly.

Why Different Cars Depreciate at Different Rates

Not all vehicles follow the same curve. The differences are dramatic and predictable.

Trucks Hold Value Best

Full-size pickup trucks like the Ford F-150, Chevrolet Silverado, and RAM 1500 retain about 62% of their value after five years. Trucks are working vehicles with consistent demand in both new and used markets. The used truck market is particularly strong because contractors, ranchers, and tradespeople often prefer buying used to keep costs down.

Off-Road SUVs Are Depreciation-Proof

Vehicles like the Toyota 4Runner, Jeep Wrangler, and Ford Bronco retain 65–75% of their value after five years — some of the strongest residual values in the market. These vehicles have cult followings, limited production relative to demand, and genuine off-road capability that doesn't diminish with age.

Sedans Depreciate Faster

Mid-size sedans like the Honda Accord and Toyota Camry retain about 52–55% after five years. Compact sedans like the Honda Civic are similar at around 50%. Sedans have fallen out of favor with many buyers who've shifted to SUVs and crossovers, which puts downward pressure on used sedan prices.

Luxury Vehicles Depreciate Fastest

Luxury sedans are the worst performers. A BMW 3 Series or Mercedes C-Class typically retains only 44–50% after five years. The reasons are high new-car prices (which sets a high starting point for the dollar loss), expensive maintenance as the vehicle ages (which scares away used buyers), and a constant stream of new models that makes prior-year technology feel outdated quickly.

Electric Vehicles: Improving but Still Steep

EVs have historically depreciated faster than combustion vehicles — roughly 50% in three years. Rapid technology improvements (better range, faster charging) make older EVs feel dated quickly. However, this trend is moderating as EV technology stabilizes and the used EV market matures.

How to Use Depreciation Data

When Buying

If you're buying new and plan to keep the car for less than five years, strong residual value matters enormously. A truck that retains 62% saves you $5,000 in depreciation compared to a sedan that retains 50% — assuming both started at the same price.

If you're buying used, look at the depreciation curve to understand where you're entering it. A three-year-old vehicle has already lost 35–40%. From that point, it will lose another 10–15% over the next two years. That's a much shallower slope than years one through three.

When Selling or Trading In

Timing your sale matters. The slope of the depreciation curve means your vehicle loses the most value per month in the early years. If you're thinking about trading in a two-year-old car, every month you wait costs you more than waiting a month at year five. Our used car pricing pages show projected yearly depreciation for every vehicle so you can see exactly how much value you're losing per year at the current age.

When Choosing Between Models

If you're choosing between two vehicles at similar prices, depreciation should be a factor. A Toyota RAV4 and a Nissan Rogue might have similar MSRPs, but the RAV4 historically retains about 5% more value over five years. On a $35,000 purchase, that's $1,750 in savings when you eventually sell or trade in.

You can compare depreciation rates and value retention ratings across competing models on our vehicle type pages.