How fast does a car lose value?

Depreciation is the biggest cost of owning a car and the only one that never sends you a bill. There is no monthly statement, no due date, nothing to sign. You find out what it cost on the day you sell.

The shape of the curve

A new car loses value fastest at the start. A common pattern is something like 20% in the first year and 12% to 14% a year after that — which compounds, so the dollar amounts shrink even as the percentage holds.

Take a $40,000 car at 20% in year one and 14% a year thereafter:

• After 1 year: worth about $32,000. That is $8,000 gone, roughly $667 a month, more than most people's payment.
• After 5 years: worth about $17,500 — about 56% of the price gone.

Year one alone costs more than years four and five combined. This is why buying a one-year-old car is such a large saving: someone else has already paid the steepest part.

Where the loan and the value diverge

Here is the part that matters practically, and it is the reason this page exists.

Depreciation is steepest at the start. Loan amortization is the opposite — early payments are mostly interest, so the balance falls slowly at first. Two curves, both starting at the purchase price, one dropping fast and one dropping slowly.

For a while, the loan is bigger than the car.

Take that $40,000 car with nothing down, financed at 6.9% over 72 months:

• The payment is about $680
• The gap opens immediately — you are about $7,550 underwater in month one
• You do not come out from under it until month 29, nearly two and a half years in

For that entire period, selling the car or having it written off leaves you owing money on a car you no longer have. That is what "underwater" means, and on a long loan with little down it is not an edge case — it is the normal first third of the term.

The depreciation calculator plots both lines together and marks the month they cross, which is the single most useful thing to know before signing a 72- or 84-month loan.

What makes the curve steeper or shallower

• Down payment. The most direct lever. Money down starts the loan below the purchase price, which is the whole reason the window exists.
• Term length. A 48-month loan may never go underwater. An 84-month loan on the same car spends years there.
• Rolling in negative equity from a previous car starts the new loan above the new car's value, which deepens and lengthens the window on day one.
• The car itself. Depreciation varies enormously by model, and some categories hold value far better than others.
• Electric versus gas. EVs have depreciated faster than the market — 57.2% over five years against 41.8% across all vehicles (iSeeCars, March 2026).

What to do with this

1. Look at where the lines cross before choosing a term. If the crossing is past the point you expect to sell, that is a decision you are making whether you look at it or not.
2. Put something down, or accept the window knowingly.
3. Carry gap insurance while you are underwater, and cancel it when you are not. Paying for it after the lines cross is buying cover for a gap that does not exist.
4. Do not roll negative equity forward if you can avoid it. It is the fastest way to turn one underwater car into two.
5. Treat depreciation as a cost, not an afterthought. Over a typical ownership period it exceeds fuel, insurance and repairs combined — see what a car really costs to own.

The car is not free between the day you buy it and the day you sell it. It is simply billing you silently, and the bill is settled once, at the end.

Sources: five-year depreciation figures from iSeeCars' study of 950,000 five-year-old used cars sold March 2025 to February 2026, published 24 March 2026, read from the same constants the calculators use. Payment, balance and crossover figures computed with this site's own amortization, on a $40,000 car at 6.9% over 72 months with nothing down.