How to Calculate Car Depreciation
What is Car Depreciation?
Car depreciation is the loss in vehicle value over time — typically the largest hidden cost of ownership. New cars lose 15–25% in year one and ~50% of value in 3 years.
Formula
Declining balance: Value = Initial × (1 − rate)^years; Straight-line: Value = Initial − (Cost per year × years)
- V₀
- Initial vehicle value (Currency)
- r
- Annual depreciation rate (Percentage (e.g., 0.15 for 15%))
- t
- Years held (Years)
Step-by-Step Guide
- 1Declining balance: value × (1 − rate) each year
- 2Straight-line: equal loss each year
- 3Low mileage and good condition slow depreciation
- 4EVs may depreciate faster due to battery concerns
Worked Examples
Input
$30k car, 20% annual depreciation
Result
Year 1: $24k; Year 3: $15.4k; Year 5: $9.8k
Frequently Asked Questions
Why do new cars depreciate so fast?
Dealer markup (10–15%), taxes, and the "new car smell premium" vanish instantly. Year 2–5 depreciation slows as you're past the initial shock.
How does mileage affect depreciation?
High-mileage cars (> 15k miles/year) depreciate faster. Standard is 12k/year. Each 1k extra miles reduces value ~$100–150 depending on vehicle.
Do EV batteries affect resale?
Yes. Battery degradation concerns and unknown long-term costs make EVs depreciate faster. A 2018 EV in 2024 may lose value to buyer uncertainty about 200k-mile reliability.
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