Understanding Car Depreciation: What Every Buyer Should Know

January 2, 2026·7 min read

What Is Depreciation?

Depreciation is the decrease in a vehicle's value over time. The moment you drive a new car off the lot, it begins losing value—and this "invisible cost" can be more significant than many buyers realize.

The Numbers

On average, vehicles depreciate as follows:

**Year 1**: 20-25% loss

**Year 3**: 40-50% total loss

**Year 5**: 60%+ total loss

This means a $40,000 new car might be worth only $16,000 after five years.

Why Depreciation Matters

Depreciation affects your total cost of ownership in several ways:

1. Equity Position

If you finance a vehicle, rapid depreciation can put you "underwater"—owing more than the car is worth.

2. Insurance Costs

Gap insurance exists specifically because of depreciation risk.

3. Resale Value

Buying a vehicle that holds value well protects your investment.

Vehicles That Hold Value Best

Certain brands and types consistently depreciate slower:

Toyota and Lexus

Pickup trucks

SUVs

Vehicles with strong reliability ratings

How CarGenius Factors This In

Our Total Cost of Ownership (TCO) score includes depreciation projections based on historical data for each specific make and model. This helps you see the true cost difference between vehicles that might have similar sticker prices but very different long-term value.

Learn more about Total Cost of Ownership and how it can save you money.