How to Calculate Car Depreciation and Trade-In Value

You’ve probably heard people say that a new car depreciates as soon as you drive it off the lot — and this is true! In fact, a car loses approximately 20% of its original value within the first year alone, and up to 60% by the end of its fifth year. 

As is the case with any purchase you make, it’s inevitable that your car will depreciate in value over time. Although you can’t stop it from happening altogether, it is still important to consider depreciation and how it affects your car’s trade-in value. Keep reading to learn how to calculate car depreciation! 

5 Factors That Affect Car Depreciation

Although depreciation is inevitable, there are various factors like age and mileage that affect your car’s value more than others. Take a look at each of these factors and how you can minimize their impact as much as possible.

1. Age

It should come as no surprise that your car’s age will affect its depreciation. Because automakers release new models every year, older models are perceived as being less valuable. Whether you’re purchasing a brand-new vehicle or a used one, it’s safe to assume that most buyers want a car with the latest technology. An older car is less likely to have desirable features that are standard today, such as a backup camera, blindspot monitoring, Apple CarPlay or Android Auto, and so on. To account for the natural wear and tear that occurs over time, as well as the lack of new features, your car’s value will continue to depreciate as it ages.

2. Mileage

Another important factor that affects your car’s depreciation and trade-in value is its mileage. In general, the average driver puts approximately 12,000 to 15,000 miles on their car per year. When purchasing a pre-owned vehicle, many consumers look for a car with the lowest mileage possible because the more mileage a car has, the less it will be worth when you decide to sell it. Since the entire purpose of owning a car is to drive it, limiting the number of miles you drive may not be realistic. However, you can try your best to reduce mileage by carpooling, taking public transportation, or walking whenever possible.      

3. Make and Model

In addition to your car’s age and mileage, the specific type of vehicle you own also makes a difference. Some makes and models depreciate faster, while others hold their value better than others. A recent study showed that some trucks, SUVs, and sports cars have the lowest depreciation rate after five years, while electric vehicles and luxury sedans tend to lose their value more quickly. If you are purchasing a new car that you intend to sell within the next five years, it might be smart to choose a model that is known to retain its value.  

4. Interior and Exterior Condition

Whenever you are selling a used car, its condition matters — both internally and externally! A car is a big investment, and people want to purchase used vehicles that have been taken care of. This means that a car with a noticeable amount of wear and tear will be less valuable than one in prime, like-new condition. Before trying to sell your car, taking the extra time to clean and maintain its appearance can drastically increase your vehicle’s resale value.        

5. Market Conditions

Although you can’t control the market conditions, it is still something to be mindful of. A variety of factors like location, time of year, and supply and demand play a critical role when it comes to your car’s depreciation. For example, it’s easier to sell a convertible somewhere warm like California or to sell a pickup truck in rural areas. The value of your car will also increase if its model is in high demand when you try to sell it. However, if the dealership already has a large supply of your car’s make and model, its trade-in value won’t be nearly as high.      

How to Calculate Car Depreciation

Now that you know the various factors that affect your car’s trade-in value, it’s time to learn how to calculate car depreciation. To get an estimate of how much your vehicle has depreciated over time, simply subtract your car’s current market value from its purchase price. Even though this is only an estimate, it will give you a better idea of what your car could be worth if you decide to sell. 

Related: How to Get the Best Price for Your Trade-in

Value Your Car’s Trade-In Value at M&L

When it comes time to sell or trade-in your vehicle, depreciation has a significant impact on its overall value. Therefore, knowing how to calculate car depreciation is critical. After all, a car is one of the most important assets you’ll ever own — and if you’re going to sell it, you’ll want to get the highest value possible. Once you’re ready to trade in your car for a new one, our experienced team of dealers will help you get the best value possible. Click the button below to get in touch with us!