How car depreciation actually works
Depreciation is the gap between what you paid and what the car is worth on the resale market. It is not linear: year one alone accounts for 20–30% of the original price, year two adds another 10–15%, and after year five most non-luxury cars stabilize at around 35–40% of MSRP. Trucks and SUVs depreciate slowest (Toyota Tacoma, 4Runner, Honda Pilot retain 60%+ at year five). Luxury sedans and EVs depreciate fastest — a Mercedes S-Class or pre-2024 Tesla Model S often loses 65%+ in five years.
What drives the curve
Five factors set the slope: brand reliability reputation (Toyota and Honda hold value, European luxury does not), mileage (each 1,000 miles above the 12,000/year baseline knocks roughly $200–$400 off resale), maintenance history (one full set of dealer records can add $1,000–$2,500), accident reports on Carfax (a single reported accident permanently caps resale 10–20% lower), and powertrain trend (gas trucks holding value as EV adoption shifts demand patterns).
How we calculate
The calculator applies a configurable annual depreciation rate compounded over the holding period: value at year n = original price × (1 − rate)^n. The default 15%/year is the median for mainstream sedans and crossovers across 2020–2025 data. For luxury cars use 20–25%, for full-size pickups use 10–12%, and for EVs use 20–25% to account for battery-replacement concerns at year 7+.
Worked Examples
Honda Civic, $28,000 new, kept 5 years
| Original price | $28,000 |
| Depreciation rate | 12% per year |
| Years | 5 |
Estimated value at year 5: $14,776. Total lost to depreciation: $13,224.
Civics consistently outperform their MSRP-based depreciation curve due to strong demand and reliability — real Kelley Blue Book values for 5-year-old Civics typically come in slightly above this estimate.
Mercedes E-Class, $62,000 new, kept 3 years
| Original price | $62,000 |
| Depreciation rate | 22% per year |
| Years | 3 |
Estimated value at year 3: $29,449. Total lost to depreciation: $32,551.
Luxury sedans are the worst depreciation category. The 3-year mark is often the sweet spot to buy used — someone else absorbed $32K of decline for you.
Frequently Asked Questions
Why do new cars lose so much value immediately?
The moment a car is titled to a buyer, it becomes "used" and loses access to new-car incentives, MSRP-protected lease residuals, and first-owner warranty terms. Dealers know any car they take in on trade competes with used inventory, so initial trade-in offers typically run 15–25% below sticker even on cars driven less than 1,000 miles.
Which cars depreciate the slowest?
Toyota Tacoma, Toyota 4Runner, Honda Pilot, Chevrolet Corvette, Subaru WRX, and Jeep Wrangler consistently top retention charts — many retain 60%+ of MSRP at year five. Full-size pickups (F-150, Silverado, Ram) hold 55–60%. The pattern: capability, scarcity, or cult-following.
Should I buy or lease based on depreciation?
Leasing makes financial sense when you plan to own a car under 4 years AND it depreciates faster than the lease implies. For fast-depreciating luxury cars, leasing usually wins. For slow-depreciating Toyotas and trucks, buying and holding 7+ years wins because you skip the high-depreciation early years.
Does depreciation slow down after year five?
Yes. Most cars enter a "plateau" between year 5 and year 10 where annual depreciation drops to 5–8%. This is why used cars in the 5–7 year age range often have the best ratio of price to remaining useful life.
Do EVs depreciate faster than gas cars?
Through 2024 yes — early EVs lost 50–60% over three years due to battery range improvements making older models feel obsolete. The 2025–2026 trend is reversing as the technology stabilizes, but EVs from before 2022 still depreciate at 20–25%/year vs. 12–15% for comparable gas cars.
Sources
Marcus has spent 12 years analyzing consumer lending, refinancing strategies, and household balance sheets. Former credit analyst at a regional bank, he focuses on translating dense Fed and CFPB data into decisions readers can act on the same day.