Cars and trucks tend to lose value as they age and experience wear and tear through everyday use. This loss of value is known as depreciation. How much these vehicles tend to depreciate will vary. For example, trucks tend to hold their value better than cars.
That said, depreciation depends on a number of factors, such as make and model, age, mileage, and accident history. Here’s a closer look at what impacts car and truck value, and how depreciation can differ between the body types.
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What Is Vehicle Depreciation?
Cars and trucks lose value each year due to normal wear and tear. The rate of depreciation will vary depending on the make and model of a car. However, the first year tends to see the greatest depreciation, when cars lose as much as 20% of their starting value. (For that reason, savvy consumers believe it’s wiser to buy a used car than a new car.) Within the first five years of ownership, a vehicle can depreciate by as much as 60%.
Depreciation is not necessarily an accurate representation of wear and tear on a vehicle. You may find that after a number of years, your car has lost significant value even if it’s in pristine, like-new condition. Deprecation will continue to affect the value of your car until it reaches $0 on paper. At that point, your car no longer has any equity, and is not considered an asset. The only value left is the value of the metal for scrap.
Depreciation is an important factor to understand whether you are buying a used car, a new car, or if you plan to lease a vehicle. When leasing a car, your monthly payment will cover the cost of depreciation.
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How Is My Car Value and Truck Value Depreciation Calculated?
There are various sources that supply car depreciation figures, including Kelley Blue Book and Edmunds. Each company has their own algorithm that accounts for the factors that affect depreciation, such as:
How much a car or truck has been driven is often seen as a proxy for wear and tear. The more something is used, the more likely it is to wear out. As a result, vehicles that have been driven less tend to fetch higher values.
Make and Model
You can think of the make and model of a vehicle as the brand and specific product on offer. For example, Toyota is the make, while Tacoma is a specific type of truck the company builds. There may be a series of letters and numbers after the model name that further delineates the trim level of the vehicle. Trim level can refer to different features, engine size, or materials used in the making of the car or truck.
Some makes and models are more popular than others, and some models have higher trim levels — both can help a vehicle hold its value longer.
A vehicle’s reputation for safety and reliability can play a big role in its popularity. The higher the demand for a particular make and model, the more slowly it may depreciate.
Larger vehicles are typically safer than smaller cars, which helps explain why trucks tend to hold their value longer. When measuring vehicle fatalities per 10 billion miles, cars average 36 deaths, while trucks average 18 deaths, or half the number of car fatalities.
More fuel efficient vehicles may also hold their value better than gas-guzzling counterparts, especially when fuel prices are high. Diesel trucks may depreciate more slowly than gasoline-powered cars and trucks because they tend to have more powerful engines, better fuel economy, and emit less carbon dioxide. A gallon of diesel contains roughly 10% to 15% more energy than a gallon of gasoline, and as a result, a diesel engine can go 20% to 35% farther on a gallon of fuel.
Your local automobile market can also have a big impact on how much your car depreciates. For example, trucks may be in higher demand in rural areas, while cars may be more popular in urban settings. Vehicles with four-wheel drive may be more sought after in places with snow, while convertibles may be in higher demand in warm, sunny climates.
You may be asked for your zip code when you look up the value of your car. This can help valuation companies zero in on how much your car is worth in your locale.
Average Truck Value vs Car Value Depreciation Comparison
Cars and trucks begin to depreciate as soon as they leave the lot. As mentioned above, they can lose as much as 20% in the first year alone, and up to 10% each year after that. By year five, a vehicle may have depreciated by as much as 60%.
That said, various types of cars and trucks tend to depreciate at different rates. And depreciation can vary a lot depending on current economic conditions. For example, Recent supply chain issues and increased demand have caused a drop in depreciation. Used cars have become more valuable as there are fewer cars entering the market. In 2021, the average five-year-old vehicle depreciated by 40.1%, compared to 49.1% just a year earlier in 2020, according to research by iSeeCars.
The same research states that trucks held their value best of all vehicles. Midsize pickup trucks depreciated just 21.4% over five years in 2021, while full-sized pickups’ five-year depreciation was 31.8% on average.
Small cars, including compact and subcompact cars, depreciated an average of 36.3% over five years, while midsize cars depreciated an average of 43.6% over five years.
Here’s a side-by-side comparison of car and truck depreciation:
|Cars||5-year Depreciation||Trucks||5-year Depreciation|
|Small Cars||36.3%||Midsize Pickups||21.4%|
|Midsize Cars||43.6%||Full-size Pickups||31.8%|
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Recent research confirms that trucks hold their value the best of all vehicles. And while size matters, bigger isn’t better when it comes to depreciation. Midsize pickup trucks depreciated less than full-sized pickups, and small cars depreciated less than midsize cars. If you plan to trade in your car or truck after a few years, consider buying a vehicle that is likely to hold its value longer to get a better trade-in value.
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At what mileage do cars lose value?
Cars and trucks unfortunately start to lose value as soon as you drive them off the lot. After that, depreciation is calculated each year.
Does mileage affect car value?
Mileage is one of the most important factors that go into car valuation. The higher the mileage, the more wear and tear the vehicle is presumed to have, and the less the vehicle will be worth.
At what age does a vehicle depreciate most?
Cars and trucks depreciate most in their first year, when they can lose 20% or more of their value.
Photo credit: iStock/timnewman
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