Car Depreciation: The Curve Every Car Follows

Depreciation isn't linear — it's a curve

A car's value decline follows a predictable shape, not a straight line. The first three years are the steepest part — new cars typically lose 20-30% of their value in year one alone, driven by the car becoming legally "used" the moment it's driven away, the newest model year resetting annually, and any manufacturer incentives disappearing on resale. From years four to seven, the rate slows to roughly 10-15% a year. After about eight years, depreciation flattens further to just a few percentage points a year, and mileage and condition take over as the dominant factors.

The two-phase model

The simulation on this page captures that shape with a simple two-rate model: a steep year-one drop, then a slower ongoing rate for every year after.

V(1) = V0 * (1 - d1)             // steep first-year drop, e.g. d1 = 20%
V(t) = V(t-1) * (1 - dn)   for t > 1   // slower ongoing rate, e.g. dn = 15%

It's a simplification of real depreciation curves, which are also shaped by make and model, condition and full service history, and broader market demand — but the steep-then-flattening shape is the single most consistent pattern across virtually every vehicle segment.

Mileage: the factor you can control

Mileage is widely considered the single biggest factor a buyer can control at the point of purchase, and it keeps mattering throughout ownership. Two identical cars of the same age can have meaningfully different resale values if one has covered twice the miles of the other. This simulation adds a small mileage penalty — roughly +0.5% extra depreciation per 1,000 miles driven per year above a 10,000-mile baseline — on top of both the year-1 and ongoing rates.

extra_rate = max(0, (annual_mileage - 10000) / 1000) * 0.005
effective_rate = base_rate + extra_rate

Depreciation varies enormously by segment

Luxury and sports cars — BMW, Mercedes-Benz, Porsche, Ferrari — often depreciate fastest, sometimes 20-30% in year one alone, driven by rapid technology turnover and status-driven demand for the newest model. SUVs and trucks generally hold value better thanks to strong demand for cargo space and towing capacity, though smaller SUVs can still depreciate quickly. Compact and economy cars tend to hold value relatively well over 5-7 years due to consistent, broad demand. Electric vehicles were initially expected to depreciate fast due to battery-degradation concerns, but as battery technology and charging infrastructure have improved, some EVs — notably certain Tesla models — have held value better than early forecasts suggested.

How to minimise the loss

A handful of well-established habits consistently reduce total depreciation loss over an ownership period:

buy slightly used     let the first owner absorb the steepest year-1 drop
keep mileage moderate  the single biggest factor a buyer can control
maintain full records   complete service history materially boosts resale value
don't overpay upfront   a lower purchase price means less value to lose
consider CPO            certified pre-owned cars carry warranties + inspection

Frequently asked questions

Try it live

Everything above runs in your browser — open Car Depreciation and change the parameters while it is running. Nothing is installed, nothing is uploaded, the whole model lives in one tab.