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.
But before you head to the local dealership, you might be interested in knowing what that car will be worth in a few years. Because, as far as investments go, the vast majority of new cars — which are known to be depreciating assets — are downright awful. Here’s a closer look at how much your new car will depreciate over the years.
What Is Depreciation?
Depreciation simply describes a loss of value over time. Most items that aren’t fine wine will slowly decrease in value, and that’s especially true for a car traveling thousands of miles a year. 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 New Car Depreciate Over Time?
While it’s impossible to say with certainty how fast your car will depreciate — after all, you’re never more than one accident away from a very sudden 100% depreciation — you can make fairly reliable predictions based on the typical rate at which cars lose value. Using the average price of a new car in April 2019 according to Kelley Blue Book, $36,843, here’s a look at just how fast the typical car loses value.
How Much a New Car Depreciates Per Year
|Year(s) You’ve Owned the Vehicle||Total Depreciation ($)||Total Depreciation (%)||Value of Car|
That Fancy New Car Can Lose 80% of Its Value in 10 Years
To look at this on a bigger scale, if you purchase a car that costs $100,000, it will lose — on average — a quarter of its value in the first year. That means it depreciated by $25,000 — a pretty hefty chunk of the car’s value. After just a year, you now have a car worth $75,000. And if you’re treating your car like an investment, well, most investments that lose you $25,000 in the first year alone can be chalked up as being pretty bad. On top of that, by the end of the fourth year, your new car is now worth less than half of what you paid for it, or $49,949.
Once the car is 30 years old, it will be worth $2,513, a 97.49% decline in its value since you purchased it. So, the answer to, “should I buy a new car?” is generally, “not if you want something that retains its value.”
How Much a $100,000 Car Depreciates Over the Years
|Year(s) You’ve Owned the Vehicle||Total Depreciation ($)||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.
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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.
Unfortunately, there’s bad news for your planned splurge: Luxury cars are typically among the cars that depreciate the most. Only one, the 2019 Porsche Macan, is in the top 10 models for best resale. So, if the celebration of your achievement would just be woefully incomplete without a chic new set of wheels, that might be a good starting point.
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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.
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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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Joel Anderson contributed to the reporting for this article.
Methodology: In order to find how much a new 2019 car will depreciate over 30 years, GOBankingRates used the Navy Federal Credit Union’s Car Depreciation Calculator. The purchase price of $36,843 in the first table is sourced from the April 2019 average new car prices, according to Kelly Blue Book published on May 1, 2019.
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 for this part was gathered on April 11, 2019.