Most people think of car costs as the loan payment. The real largest cost is depreciation — the loss in value as a car ages. On a new vehicle, this loss is immediate, significant, and certain. Understanding depreciation changes how you think about vehicle purchases.

How Cars Depreciate

The typical new car loses approximately 20% of its value in the first year — partly from the moment it is driven off the lot. By year 5, most vehicles have lost 40–60% of their original value. By year 10, depreciation slows significantly as the vehicle approaches its stable used-car floor value.

Depreciation as a Per-Mile Cost

If a $35,000 vehicle loses $18,000 of value over 5 years and you drive 60,000 miles in that period, depreciation costs you $0.30 per mile — before fuel, insurance, or maintenance. The IRS standard mileage rate (67 cents/mile in 2024) is designed to cover all these costs including depreciation.

Vehicles That Hold Value Best

Pickup trucks and some SUVs consistently have the best resale value — Toyota Tacoma, Honda CR-V, Subaru Outback, and Toyota 4Runner regularly retain 50–60% of value at 5 years. Electric vehicles have experienced unusually high depreciation recently due to rapidly falling new EV prices and range improvements. Luxury vehicles typically depreciate faster than economy and midsize vehicles.

The Case for Buying Used

A 2–3 year old used vehicle has already absorbed the steepest depreciation drop but typically has 80–90% of its useful life remaining. Buying at this point puts you in the best position on the depreciation curve — the expensive first-year drop was paid by the original owner, and you get a nearly new vehicle for significantly less.