A car is one of the largest investments you will ever make next to a home. It’s common knowledge that a car depreciates in value the minute a new car leaves the sales lot. What you may not realize, though, is that depreciation is often the single largest cost associated with owning a car.
Depreciation accounts for roughly half of your car’s total cost of ownership (TCO) over a five-year period. But it usually isn’t a factor when consumers research their next car purchase. This is unfortunate since your vehicle depreciates as much as 20% the instant you drive off the lot for the first time.
Key Takeaways
- Depreciation is the decrease in the value of an asset by the length of its useful life.
- Depreciation is the single largest cost of owning a car.
- It accounts for roughly half of your car’s total cost of ownership over a five-year period.
- A vehicle’s useful life is affected by factors like the original purchase price, sales tax, gas prices, loan interest rates, insurance premiums, maintenance and repairs, and automaker reputation.
- Toyota has several vehicles with low depreciation values, leading to higher resale amounts, according to Kelley Blue Book.
What Is Depreciation?
Depreciation is defined as a decrease in the value of an asset by the length of its useful life. That useful life (and therefore its deprecation) is affected by factors such as the original purchase price, sales tax, gas prices, automotive loan interest rates, insurance premiums, maintenance and repairs, and automaker reputation.
Determining the depreciation of a car isn’t easy. You must research the model you are considering. Here are a few things you should look into:
- Determine the new car price for that make and model
- Look at the used price for the same make and model
- Factor in the residual value of the used vehicle to get an accurate picture of its depreciation
After the initial hit to a car’s value in the first year, many use an average figure of 15% to 18% depreciation per year from years two to six.
We’ve listed some of the top vehicles by resale value with the lowest amount of depreciation, according to Kelley Blue Book’s 2021 list. All depreciation figures and those for the total cost of ownership are derived from Edmunds.
Residual value is the value of a vehicle after subtracting depreciation. There are multiple lists published by car guides, auto magazines, and consumer reporting groups of cars that depreciate the least.
Best Brand: Toyota
Toyota (TM) generally leads the pack when it comes to value and reliability. The brand tops Kelley Blue Book’s list of vehicles with the best resale value in five different categories. The list is divided into different vehicles classes each year, including sedans, mid- and full-size cars, hybrids, electric vehicles, SUVs, and minivans. The list includes vehicles with the least amount of depreciation.
Best Compact Car: Subaru Impreza
The Impreza may not be a fun and flirty car, but it does provide the driver and passengers with a lot of room. This model is rated as one of the safest compact cars on the road, not to mention one of the most reliable. It also has one of the best resale values of any other car around.
The manufacturer’s suggested retail price (MSRP) for the 2021 Subaru Impreza was $18,795 if you purchased the basic model with no upgrades. The true cost to own the vehicle after five years is $30,478. The cost of depreciation for a 2021 Impreza is estimated to be $7,220 after that period.
Best Midsize Car: Toyota Camry
The Camry is one of the most popular sedans on the market and has been for quite some time, owing to its reliability and comfort. It tops the list of midsize sedans, beating out rivals, such as the Honda Accord, Nissan Altima, and Hyundai Sonata. The car comes with a regular gas engine or hybrid option for those who want better fuel economy.
The MSRP for a 2021 Camry was $24,970 for a basic LE model without any add-ons or extra features. The true cost to own one is estimated to be $31,206, with depreciation coming in at $9,555 after five years.
Best Hybrid Vehicle: Toyota RAV4
Toyota’s RAV4 is one of the top compact SUVs on the market based on consumer purchases. The hybrid model has a 219-horsepower engine and boasts 41 miles per gallon when you drive in the city. It’s also available in a fully gas-powered model for those who don’t want to pay extra for the non-hybrid version.
Looking to purchase the 2021 hybrid RAV4 LE? The MSRP is $28,500. Remember, that’s just the base model without any extras. The five-year TCO is $33,562. This includes the cost of depreciation of $10,350.
Best Full-Size SUV: GMC Yukon
GMC overhauled the design of this full-size SUV, making it roomier and more powerful. There’s a full third row of seating and the option to upgrade to a new off-road-oriented AT4 trim. You can also purchase the Yukon in a diesel model.
The additional room and styling aren’t the only attractive features of this vehicle. GMC has set a competitive price on the Yukon with the MSRP coming in at about $51,995. The true cost of ownership comes in at about $70,953 after five years, with depreciation in the range of $31,743. That’s less than half the value.
The Bottom Line
No automotive expert can accurately predict the depreciation of a particular vehicle. You shouldn’t purchase a car solely on the assumption that it won’t depreciate as much as another. Unless you purchase a car you enjoy driving, you will hate that car. This is true even if it does hold its value.
Factors like the economy, fuel prices, and maintenance can alter the depreciation value of a vehicle. If you want to keep the depreciation low, take good care of it and sell it before the mileage gets too high. You should also factor in how long you plan to use the vehicle.
If you plan on driving it for as long as possible, depreciation won’t matter. If you want to drive it for a few years and buy another one, ensure you know how much it’s worth down the road. Sometimes, buying a used vehicle will be best for that situation, but make sure the used vehicles you look at are worth the price.