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What is Vehicle Depreciation? | A Guide for Drivers

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Cars lose their value over time. This phenomenon is known as vehicle depreciation, and it can have many effects on the price of your car during a sale or trade-in. Drivers need to know how depreciation works and how it can affect them in the future.

What is Vehicle Depreciation?

Vehicle depreciation simply refers to the fact that your car’s value declines over time. As you drive your vehicle, you can see your car’s value decrease up to 30% by the end of your first year. In as little as five years, you’ll likely see a loss of around 60%.

That percentage probably sounds like a lot, especially if you bought your car new off the lot. So, what causes car depreciation and how will it affect your value over the long term?

What Causes Car Depreciation?

There are several potential causes of vehicle depreciation, and each carries a different weight when calculating the value of your vehicle. Some of these causes include age, vehicle type, mileage, and condition.

  • Age – Age is one of the largest considerations when estimating depreciation. The older your vehicle is, the higher the depreciation.
  • Vehicle Type – Some vehicles depreciate less based on the type of vehicle it is. For example, Trucks and SUVs will depreciate less than sedans. Also, some makes like Jeep and Toyota decline less than their counterparts. Finally, some cars also have a reputation for their longevity and will depreciate less.
  • Car Mileage – For each mile you put on the odometer, the more your car’s value will decline. Higher mileage leads to depreciation because it indicates that a car will need more maintenance on worn parts. Additionally, mileage can also signal that a vehicle is nearing the end of its lifespan.
  • Condition – Finally, the condition of your car will also have an impact on depreciation. This includes wear on the internal parts of the vehicle, as well as damage to the interior and exterior.

How the Covid-19 Pandemic Leads to Record Auto Depreciation rates?

Supply and demand dictates prices. Lower supply or higher demand will generally lead to price increases. During the Covid-19 pandemic that began in March of 2020, the United States experienced both of these headwinds at the same time. A disruption in the global auto supply chain, fueled further by a chip manufacturing shortage, combined to drive a 12% jump in new car prices just between 2021 and 2022 alone. Combined with unprecedented lockdowns, Americans rapidly stopped trading in their old cars in masses, so it was harder to find a replacement, raising used and new prices further. Used car prices surged over 40% between 2021 and 2022 as a result. Unfortunately, for most people that purchased an automobile during the pandemic, a slow and steady return to pre-pandemic supply levels has led to faster than normal depreciation rates.

How Vehicle Depreciation Affects Car Owners

Knowing the cost of vehicle depreciation is important for car owners. Understanding depreciation will help you down the road if you decide to resell your car or even refinance it.

For the best results, you should work with a refinancing expert like Gravity Lending. Customers who refinance with Gravity Lending save 26% on their car payments. You’re 90 seconds away from saving money when you start your application.