You’ve made it. Perhaps you got a big promotion, or your new business has really taken off. You feel as though you’ve arrived financially, and it’s time to splurge on something for yourself. A fancy new car should certainly do the trick.
Before you head to the local luxury car dealership, you might be interested in knowing what that car will be worth years from now. Is it a good investment? Here’s a look at how much your new car will depreciate over the years.
What Is Depreciation?
A new car costs more than a used car and an older car costs less than a newer car — all due to depreciation. In accounting terms, businesses use depreciation to spread the cost of large items over a number of years so they don’t take one big hit to their earnings.
When figuring depreciation, you need to consider the purchase price of the item, the number of years you will use it and the salvage value, or what it’s worth when you’re done with it. The fact that the value of a used car is based on supply and demand makes calculating the depreciation of a car a bit more complicated than, say, a piece of manufacturing equipment.
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How Much Does a $100,000 Car Depreciate per Year?
If you purchase a car that costs $100,000, it will depreciate, on average, 25%, or $25,000, in the first year. That’s a pretty hefty chunk of the car’s value when you consider that, after just a year, you now have a car worth $75,000.
In year two, your car will decline by 12% in value based on the new value of $75,000. So your vehicle is now worth $66,000 at the end of the year — two-thirds of what you paid just two years earlier. In year three, the value drops another 12%, making your car worth $58,080.
By the end of the fourth year, your new car has dropped another 14% in value and is now worth less than half of what you paid for it, or $49,949.
In years five and six, the average car will decline in value by 15% per year, then depreciation will step down slowly until it declines at 10% per year beginning in year 11. Once the car is 30 years old, it will be worth $2,513, a 97.49% decline in its value since you purchased it.
|How Much a $100,000 Car Depreciates Per Year|
|Year(s) You’ve Owned the Vehicle||Total Depreciation ($)||Total Depreciation (%)||Car’s Value|
Why Do Cars Depreciate Quickly?
Cars depreciate because of the wear and tear on the vehicle. A 5-year-old car typically doesn’t run as well as one that’s just off the assembly line, and parts begin to need to be replaced. Cars also decline in value because newer, more advanced models come out. Consumers who are buying a car need to weigh the pros and cons of buying a brand-new car with more technology and a bigger price tag versus an older car with fewer fancy features but a lower cost.
Some cars depreciate faster than others. Kelley Blue Book, which provides used car values for prospective car buyers, recognizes the cars that depreciate the least. In 2019, the best brand for resale value is Toyota, with the Tacoma pickup truck coming in first. It retains 96.4% of its value after three years, and 62.2% after five years.
The best luxury brand for resale value is Porsche. Luxury cars don’t fare as well in the resale department, with only one, the 2019 Porsche Macan, in the top 10 models for best resale. And the list price of the Macan is just $51,150, so if you really want to wow the neighbors, you might have to buy two. Or, go with the 2019 Porsche 911 coupe base model, which retails for $92,350, putting it just under the $100,000 threshold for that fancy car splurge.
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How To Slow Down or Reduce Car Depreciation
You can take steps to reduce the impact of depreciation on your budget. Here’s how to reduce the depreciation of your car’s value:
- Buy a used car instead of a new one. Those early years have the highest percentage of depreciation, so let someone else take the hit.
- Buy a new car and keep it as long as you possibly can. The longer you drive it, the more value you’ll squeeze from it.
- Watch your mileage. If you drive fewer than 10,000 miles per year, you’ll reduce the amount of wear and tear on your vehicle.
- Maintain your car regularly. Following the dealer’s recommendation for scheduled maintenance on your car will keep it running well and ensure that small problems don’t turn into big ones.
How To Save Money When Buying a New Car
If buying a new car is important to you and you’re willing to pay the extra money, there are still ways you can save. Try these tips to manage the sticker price of your new ride:
- Sell your old car instead of trading it in. When you trade your car in, the price the dealer offers you takes into account a profit for the dealer. By selling your old car yourself, you can recoup all of its value instead of part of it.
- Watch the accessories. It might be tempting to get a model with every bell and whistle, but options can really run up the tab. Choose only those options you need and will use.
- Do your homework. Know what price you should pay before you set foot on the dealer’s lot. Kelley Blue Book can help you price out the car you want with the options you’re considering.
Keep reading to learn how much a car cost the year you were born.
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Methodology: In order to find out how much a $100,000 car will depreciate over 30 years, GOBankingRates used the Navy Federal Credit Union car depreciation calculator. The purchase price was set at $100,000; vehicle age was set at zero; “Years will own the vehicle” was scaled from one through 30. GOBankingRates also noted how much a $100,000 car will depreciate with a “future depreciation” set at low, average and high rates. GOBankingRates collected the data on the drop in value in dollar amounts each year and total, as well as a drop in value in percentage in each year and overall. All data was gathered on April 11, 2019.