Depreciation — the value a car loses as it ages — is the single largest cost of owning one, bigger than fuel, insurance, or repairs (see the full cost of ownership). It’s also the cost owners feel least, because no one ever sends a bill for it; it just quietly shows up the day you sell. This page lays out how much a car loses each year, why the drop is steepest at the start, and what makes some cars hold value far better than others.
The short version: a typical new car loses around 20% of its value in the first year, keeps falling quickly for a few years, and retains roughly 45% after five — though the exact figure varies widely by model, mileage, and the used-car market of the moment.
The year-by-year curve
The table below is a typical depreciation curve — the one this site’s lease-vs-buy calculator uses to estimate resale value. It’s a representative model, not a measurement of any one car: real depreciation varies (the ranges are in the next sections). Figures are shown for a $35,000 car.
| Year | Value retained | Value of a $35,000 car | Lost that year |
|---|---|---|---|
| At purchase | 100% | $35,000 | — |
| 1 | 80% | $28,000 | $7,000 |
| 2 | 68% | $23,800 | $4,200 |
| 3 | 58% | $20,300 | $3,500 |
| 4 | 50% | $17,500 | $2,800 |
| 5 | 45% | $15,750 | $1,750 |
| 6 | 40% | $14,000 | $1,750 |
| 7 | 36% | $12,600 | $1,400 |
| 8 | 32% | $11,200 | $1,400 |
| 9 | 28% | $9,800 | $1,400 |
| 10 | 25% | $8,750 | $1,050 |
| 11 | 22% | $7,700 | $1,050 |
| 12 | 20% | $7,000 | $700 |
| 13 | 18% | $6,300 | $700 |
| 14 | 16% | $5,600 | $700 |
| 15 | 15% | $5,250 | $350 |
The shape is the point: the dollars lost taper off over time — steep early, then settling into smaller, roughly even steps (where the curve’s annual percentage drop is the same from one year to the next, the dollar loss simply repeats). The first year alone costs more than years 4, 5, and 6 put together. By year five the car is worth about $15,750 — under half what you paid.
Why depreciation is front-loaded
The moment a new car is registered it becomes a used car, and a chunk of value disappears with the title transfer. Three forces concentrate the loss early: the “new-car premium” a first owner pays evaporates immediately; the factory warranty steadily burns off, so each year the car carries less remaining coverage; and the supply of nearly-new used cars competes directly with what you’d resell.
Edmunds pegs the average first-year loss at about 23.5% of MSRP, with a wide spread — roughly 6% to 45% depending on the model. Our curve uses a round 20% for year one; either way, year one is the most expensive year you’ll ever own the car.
How much a car loses in five years
Five years is the period most buyers actually care about, and the estimates genuinely disagree — which is worth understanding rather than papering over with one round number:
- Edmunds / the long-run rule of thumb: about 60% lost over five years (retaining ~40%).
- iSeeCars (2026 study of more than 950,000 five-year-old cars sold March 2025–February 2026): an average of 41.8% lost — retaining ~58% — a 3.8-point improvement over the prior year as used-car values recovered.
Our calculator uses ~45% retained (≈55% lost), which sits between those two — closer to the long-run rule of thumb than to the recent hot used market. If used values stay strong, real depreciation may be milder than the curve above; if the market cools, steeper. The honest takeaway is a range, not a single guaranteed number.
What makes a car depreciate faster or slower
Two cars bought for the same price can be worth very different amounts five years later. The biggest factors:
- Segment. Per iSeeCars (2026), trucks hold value best — about 34.2% lost over five years — with hybrids close behind at 35.4%, while electric vehicles depreciate the most, about 57.2%, as battery concerns and fast-moving technology weigh on used demand — a gap our EV vs gas calculator builds into the break-even.
- Brand and reliability. Models with strong reputations and steady demand hold value; niche, luxury, or maintenance-heavy ones shed it fast. The spread is enormous — Edmunds’ own first-year figures range from about 6% to 45% of MSRP depending on the model.
- Mileage and condition. Above-average mileage and visible wear pull resale down fast; clean history and records slow the slide.
- Supply and demand. The whole used market swings — the BLS used-car price index spiked and then fell sharply in recent years, which is why “average” depreciation differs so much depending on when the data was collected.
What this means for your money
- Buying lightly used skips the cliff. A two-to-three-year-old car has already shed its steepest losses — the first owner paid for them (the trade-off is weighed in full in new vs used: the full cost compared). This is the single biggest lever you have on total cost.
- Selling early is expensive. The shorter you hold, the larger the share of your money depreciation eats; the per-year cost only flattens out the longer you keep the car.
- It compounds with everything else. Depreciation is the biggest line in the full cost of owning a car, and the resale value it leaves you with is often the number that decides whether buying or leasing costs less over the years you’d actually keep the car.