Depreciation

Depreciation refers to the decline in a vehicle’s market value from the time it is purchased to the time it is sold or traded in. Cars are depreciating assets, meaning they lose value rather than gain it over time.

The steepest depreciation typically occurs in the first three to five years of ownership, with vehicles often losing 20% to 30% of their value in the first year alone. Factors influencing depreciation include brand reputation, mileage, condition, accident history, fuel efficiency, technology, and overall market demand.

Vehicles from manufacturers known for reliability often depreciate more slowly, while luxury models or those with high maintenance costs may lose value faster. Depreciation has a direct impact on financing because it influences equity.

Borrowers who finance with little or no down payment may quickly find themselves with negative equity if the car’s value drops faster than the loan balance. Depreciation also affects lease agreements, as monthly lease payments are largely based on the expected depreciation of the vehicle during the lease term.

Understanding depreciation helps buyers choose vehicles with stronger resale values and manage financial risk. Tools such as depreciation calculators and market reports can help forecast value loss and guide smarter purchasing decisions.