A new car typically loses about 20% of its value in the first year and around 60% after five years, based on Carfax’s long-running rule of thumb. The used market has been kinder lately: an iSeeCars study of about 950,000 five-year-old cars sold between March 2025 and February 2026 found an average five-year loss of 41.8%, or $16,571. Either way, depreciation is the largest cost of owning a new car, averaging $4,422 a year in AAA’s 2026 Your Driving Costs study, more than fuel or insurance.
How fast your car loses value depends on the model, the mileage and how you buy it. Some vehicles lose less than a quarter of their price in five years, while others lose more than 60%. This guide shows the typical year-by-year curve, which models held value best and worst in the latest data, and the specific moves that reduce how much you lose.
Car depreciation by year: the typical curve
Depreciation is steepest at the start and flattens with age. Carfax data shows a new car can lose more than 10% of its value in the first month of ownership, once it becomes a used car. After the first year, the yearly loss in dollars keeps shrinking because each year’s percentage applies to a smaller value.
Here is an illustrative curve for a $40,000 new car, using a 20% drop in year one and 15% of the remaining value each year after that. Real cars vary, but this shape matches the common pattern.
- After year 1: worth about $32,000 (lost $8,000)
- After year 2: about $27,200 (lost $4,800 that year)
- After year 3: about $23,120 (lost $4,080)
- After year 4: about $19,650 (lost $3,470)
- After year 5: about $16,700 (lost $2,950), for a total loss of about 58%
Notice that the first year costs almost as much as years four and five combined. That front-loaded drop is why buying slightly used is the most reliable way to cut depreciation.
Example: Aisha can buy the $40,000 car new, or the same model at three years old for about $23,100. On the curve above, the new-car buyer loses about $16,880 in the first three years. Aisha, buying at year three and keeping it three more years, loses about $8,900 over her three years of ownership. She gives up some warranty coverage and the newest features, but keeps nearly $8,000 more of her money.
Why new cars lose value so fast
A new car’s price includes the dealer’s margin, the novelty of a current model and a full factory warranty. The moment it is titled to you, it competes with nearly identical used cars that sell for less. Redesigns hurt too: when a model gets an all-new generation, the outgoing version looks dated and its prices soften.
Supply plays a big role. When new-car inventory was scarce in 2021 and 2022, used prices rose and depreciation briefly looked mild. iSeeCars found five-year depreciation of 38.8% in its 2023 study, 45.6% in 2025 and 41.8% in 2026, so the “normal” rate moves with the market. Large manufacturer discounts on a new model also pull down used values for that model, since a used one has to undercut the discounted new price.
Cars that hold their value best and worst
The 2026 iSeeCars study ranked models by how much of their original price they lost over five years. Sports cars with loyal followings, Toyota trucks and SUVs, and small practical cars like the Honda Civic held up best. Electric vehicles and large luxury models lost the most.
| Model or group | 5-year depreciation | Average dollar loss |
|---|---|---|
| Porsche 718 Cayman | 9.6% | $6,988 |
| Honda Civic | 22.9% | $5,828 |
| Toyota RAV4 (including hybrid) | 25.2% | $7,731 |
| Toyota Corolla Hatchback | 25.5% | $6,220 |
| Toyota 4Runner | 25.5% | $10,697 |
| Hybrids (segment average) | 35.4% | Varies |
| All vehicles (average) | 41.8% | $16,571 |
| Ford Mustang Mach-E | 60.8% | $22,976 |
| Volkswagen ID.4 | 62.1% | $28,010 |
| Tesla Model S | 62.0% | $58,907 |
| Nissan Leaf | 63.1% | $17,743 |
The dollar column matters as much as the percentage. Working back from these figures, the Honda Civic and Nissan Leaf in the study started at similar prices, roughly $25,000 to $28,000, yet the Civic lost about $5,800 and the Leaf about $17,700. Expensive vehicles with high depreciation, like the Tesla Model S or full-size luxury SUVs, can lose $50,000 or more in five years.
Why EVs drop faster: battery and charging technology improves quickly, new EV prices have been cut repeatedly, and some shoppers worry about battery health on older cars. That is a cost for the first owner and an opportunity for a used buyer. Hybrids sit at the other end, helped by strong demand for fuel-efficient cars.
Example: Two buyers each spend $35,000. One picks a model that depreciates like the RAV4 in this study (25.2%), the other one that depreciates like the ID.4 (62.1%). After five years, the first car has lost about $8,820 and the second about $21,735. The difference, roughly $12,900, is more than most people spend on fuel over the same five years.
What makes one car lose more than another
Beyond the model itself, these factors move what a specific car is worth at trade-in:
- Mileage. A car driven well above the typical 12,000 to 15,000 miles a year is worth less than an otherwise identical low-mileage one, and crossing round numbers like 100,000 miles tends to hurt more.
- Accident and title history. A reported accident on a vehicle history report lowers offers even after good repairs, and a salvage or rebuilt title cuts value sharply.
- Condition. Curb-rashed wheels, worn tires, stained seats and smoke odor all give a buyer a reason to offer less.
- Service records. A folder of receipts showing on-time oil changes and scheduled maintenance makes a private buyer more confident.
- Trim and options. Popular trims and drivetrains (all-wheel drive in snowy states, for example) are easier to sell. Expensive options usually return only a fraction of their cost.
- Modifications. Lift kits, loud exhausts and aftermarket wheels shrink the pool of buyers and can lower dealer offers.
How to minimize depreciation
You cannot stop a car from losing value, but these steps reduce how much of that loss lands on you:
- Buy two to three years old when you can. The first owner absorbs the largest drop, and many of these cars still have factory powertrain coverage.
- Check resale history before you shop. Look at what the same model sells for at three and five years old compared with its original price.
- Pick a mainstream trim, color and drivetrain that most buyers in your area want.
- Keep mileage reasonable and records complete. Save every service receipt in one folder or app.
- Fix small cosmetic damage before selling. A paintless dent repair or a wheel refinish often costs less than the price cut a dealer will ask for.
- Skip modifications you cannot undo, and keep the original parts if you do modify.
- Keep the car longer. Year six or seven costs far less in depreciation than year one, so long ownership spreads out the hit.
How to calculate your own car’s depreciation
Subtract today’s market value from what you paid, then divide by the years you have owned the car. Use a pricing guide such as Kelley Blue Book or Edmunds for a private-party or trade-in value based on your exact trim, mileage and condition. Getting a written offer from one or two instant-buy services gives you a real-world check on those estimates.
Example: Carlos paid $31,000 for his sedan four years ago. Today’s trade-in offers average $17,500. His depreciation is $13,500, or about $3,375 a year (44% total). If his loan balance is higher than $17,500, he has negative equity, and selling now would mean paying the difference out of pocket or rolling it into the next loan.
Common questions
How much does a car depreciate per year?
A common rule of thumb is about 20% in the first year and around 15% of the remaining value each year after, adding up to roughly 60% over five years. Recent used-market data has been gentler, with iSeeCars finding an average five-year loss of 41.8% in its 2026 study. The rate for your car depends heavily on the model and mileage.
Which cars depreciate the fastest?
In the 2026 iSeeCars study, electric vehicles and large luxury models lost the most, including the Nissan Leaf (63.1%), Infiniti QX80 (62.8%), Volkswagen ID.4 (62.1%) and Tesla Model S (62.0%). Expensive luxury SUVs and sedans tend to lose the most dollars because they start at high prices.
When does car depreciation slow down?
Dollar losses are largest in the first year and shrink each year after. By about years five through seven, the yearly drop is much smaller, which is why buying a few years old or keeping a car a long time lowers your depreciation cost.
Do electric cars depreciate faster than gas cars?
In recent data, yes. AAA’s 2026 study estimated depreciation for an electric medium sedan at $6,786 a year, about twice the gas version’s $3,330, and EVs filled many spots on the worst-retention list. That makes used EVs relatively cheap to buy.
Can I deduct car depreciation on my taxes?
Not for a personal car. If you use a vehicle for business, you can generally deduct either actual expenses (including depreciation) or the IRS standard mileage rate for the business share. A tax preparer can tell you which method fits your situation.
Before you buy
- Compare the three-year-old price of the model you want with its new price.
- Check the model’s five-year depreciation against the 41.8% average.
- Choose a common trim and color that will be easy to resell.
- Plan to keep the car long enough to get past the steepest years.
- Avoid a long loan with a small down payment on a fast-depreciating model, since that is how negative equity starts.
Editorial note: This article is general information, not financial advice. Depreciation figures come from the iSeeCars 2026 study, Carfax and AAA, checked as of November 2026; values for a specific vehicle vary, so confirm with a current pricing guide or written offers before you buy or sell.