Car value and depreciation, explained

Your car is a valuable asset, but not all valuables age the same way. Some assets like fine wine or jewelry tend to appreciate in value over time, but car value is more likely to go down as the years pass. That’s because cars are subject to everyday wear and tear, which adds up over time and lowers your car’s value.

The gradual decrease in an asset’s value over time is called “depreciation,” and sadly, it’s inevitable for most cars. Luckily, with a little know-how, it can be managed. Let’s learn more.

What contributes to a car’s value?

Before diving deeper into car depreciation, it may be helpful to first understand some of the factors that contribute to car value in general.

Age

The age of a car is a major factor in determining its value. As time goes by, a car’s likely future lifespan and usefulness diminishes, which makes it worth less. The only instance where age may cause car value to appreciate is if it’s a classic or collectible car.

Make, model and type

The specific make and model of a car will have a substantial influence on its overall value. A luxury car, for example, tends to be valued (and priced) significantly higher than a family minivan. Even within the same vehicle class, some cars might be valued higher than others due to various considerations, such as its general reliability as a vehicle, the quality of its parts and more.

Condition

The condition of the car will affect its value. For example, a car that’s been beaten up in several accidents or has just been generally poorly maintained is likely to be worth less than a similar car that’s been kept in good shape by its owner.

Mileage

The more mileage there is on a car, the more wear and tear it’s likely to have experienced. This can raise repair costs, which drives down the value of the car from a buyer's perspective.

What is vehicle depreciation?

Now that you’ve learned about car value in general, we can talk about depreciation in more depth. As you learned earlier, depreciation is the value loss an asset may experience over time. Put another way, it’s the difference between what you paid for your car and what it’s worth now. Cars tend to depreciate rapidly over their first few years. In fact, your new car may lose some of its value the minute you drive it off the lot, just by virtue of now being “used.” The good news is that vehicle depreciation does eventually slow down to a steadier rate after your car’s first few years.

Potential ways to combat vehicle depreciation

Time stops its march for no man, and sadly neither does depreciation. However, depreciation does slow down. Here are a couple things you might try to help slow it down even further:

Following a regular maintenance schedule

Cars that have been regularly maintained are less likely to require major repairs. They’re also more likely to be in better overall condition, which helps them retain their value.

Taking good care of the car’s interior and exterior

Taking good care of your car’s interior and exterior goes hand-in-hand with a steady maintenance schedule. The closer the car looks to its original, unused condition when you try to sell it, the more value you're likely to get back from the sale.

In summary

Car depreciation is unavoidable, but it can be mitigated. Cars wear and tear over time, much like people do. However, regular maintenance and proper care of your vehicle can have the same effect on car value as taking good care of yourself can have on your health.