How Cars Depreciate
We’ve all heard stories of how dramatically new cars lose their value once they are driven off the new car lot. But just how big of a drop can you expect when buying a new car and what is likely to happen in the years ahead? Here is a look at new car depreciation and what the average new car buyer can expect.
Driving a Car Off the Lot
A general rule of thumb is that your new car will depreciate at least 10% by the time you drive it home. That means if you purchase a $40,000 vehicle it will already drop in value to $36,000 by the time you pull it into your garage. That is just the beginning.
Depreciation After One Year
On average, the value of a new car will drop a whopping 25% by the end of its first year. That means that a 40,000-dollar vehicle will now be worth just $30,000 after a single year of private ownership.
Your New Car’s Value After Two Years
After just two years, you can expect your recently new car to drop in value to about 65% of what you paid for it. In our example, that $40,000 car is now worth $26,000.
Value After Three Years
Your car will continue to drop in value to about 55% of what you paid for it.
The Halfway Point
After just four years, most new cars are now worth less than 50% of their original value, and that decrease in value will likely only decrease. This is largely due to the expensive major repairs that may lie ahead.
Many experts say that, because depreciation increases after four to five years, this is the best time to sell your used car.
Keep in mind that the above estimations can change depending on the resale value of individual models, the used car market and condition, and the miles on a particular vehicle.
New or used, we can help make sure you are getting the best value for your car insurance dollars. Contact us for a no-obligation quote and drive with confidence. We look forward to assisting you.