Car Depreciation

How Car Depreciation Is Calculated

A new car commonly loses around 20% of its value in the first year, then around 15% of its remaining value each year after that. Enter the original price and how many years it’s been (or will be) owned, and this calculator estimates its resale value today, using a widely-cited real-world depreciation curve — not the straight-line or declining-balance accounting schedules built for business assets.

Depreciation is the single biggest cost of owning a car for most people — often larger than interest, fuel, or maintenance over the life of ownership. Knowing roughly where a vehicle sits on that curve helps with decisions like whether to buy new or slightly used, how long to keep a car, or what a trade-in is realistically worth.

The Formula

$$\vB{\text{Value After 1 Year}} = \vA{\text{Original Price}} \times (1 - 0.20)$$ $$\vB{\text{Value After Year } n} = \vB{\text{Value After Year } (n-1)} \times (1 - 0.15) \quad \text{for } n > 1$$

Each year’s loss applies to whatever value REMAINS at the start of that year, not the original price — the same way compound interest builds on a growing balance rather than the starting amount alone, just working in reverse.

Worked Example

A $30,000 car after 3 years of ownership:

1. After year 1: $\vA{30,000} \times 0.80 = \vB{\$24,000}$.
2. After year 2: $\vB{24,000} \times 0.85 = \vB{\$20,400}$.
3. After year 3: $\vB{20,400} \times 0.85 = \$17,340$.

The car is estimated to be worth about $17,340 — roughly 58% of its original price — after three years of ownership.

Key Factors to Consider

• Some vehicles hold their value far better than the average curve suggests. Certain brands and models (particularly trucks, some SUVs, and vehicles with strong reliability reputations) are well-known for depreciating slower than the general rule of thumb — check a specific make/model’s own resale-value reputation rather than assuming every vehicle follows this exact curve.
• Mileage matters more than age alone for real resale value. A vehicle driven far more than average for its age typically resells for less than this age-based estimate suggests, while a low-mileage vehicle of the same age often resells for more — this calculator’s curve is based purely on years owned, not actual mileage.
• A new car’s first-year drop is partly about being “used,” not just wear. The steep first-year loss reflects that a car is legally and psychologically a “used car” the moment it’s driven off the lot, on top of any real wear — this is why buying a slightly used, low-mileage vehicle instead of new can sometimes mean absorbing much less of that first-year drop.
• Local market conditions and vehicle condition both shift actual resale value in either direction. Regional demand, a particularly clean maintenance history, or notable damage/wear can all move a specific vehicle’s real resale value meaningfully away from this general estimate — treat it as a starting reference, not an appraisal.

Useful to Know

Steep first-year depreciation can put a financed buyer “underwater” — owing more on the loan than the car is worth — especially with a small down payment or a longer loan term, since the loan balance often falls more slowly than the car’s resale value in the early months. This is exactly the gap GAP (Guaranteed Asset Protection) insurance is designed to cover in a total-loss claim; a larger down payment or a shorter loan term is the more direct way to avoid the gap forming in the first place. Leasing sidesteps this risk in a different way — the leasing company sets the car’s residual value up front and absorbs the depreciation itself, since you never own the asset that’s losing value.