Thinking about buying a car but not sure how to choose? Take a look at its depreciation rate, or the measure of how fast it loses value. That could help steer you in the right direction.
New cars start to depreciate the second you drive them off the lot. By the end of the first year, the average vehicle will have lost nearly 25% of its original value, according to data from Edmunds. That trend continues as the car ages, adds mileage, and absorbs wear and tear.
The average car depreciation over the first five years is a whopping 49%.
Researchers at iSeeCars.com analyzed 8 million new and used cars from model year 2015 to find out how much they depreciated in their first five years. New cars in the study were sold in 2015, while the used ones were sold between January and September 2020. Prices on new cars were inflation-adjusted to 2020 dollars based on data from the U.S. Bureau of Labor Statistics.
Based on the data, here are the top five cars that depreciate the least over time, coming in well under that 49% average.
Average five-year depreciation: 37%
Depreciation in dollars: $17,020
Average five-year depreciation: 36%
Depreciation in dollars: $56,133
Video by Stephen Parkhurst
Average five-year depreciation: 32.8%
Depreciation in dollars: $10,824
Average five-year depreciation: 32.4%
Depreciation in dollars: $10,496
Average five-year depreciation: 30.9%
Depreciation in dollars: $12,168
Jeep earns the first and third spots on the list with its four-door Jeep Wrangler Unlimited and two-door Jeep Wrangler. Those vehicles lost $12,168 and $10,824 of their value, or 30.9% and 32.8%, respectively.
Video by James Armesto
"While the average new vehicle loses almost half of its value after five years, there are vehicles that retain more of their value and depreciate less than average," Karl Brauer, an executive analyst at iSeeCars, said. "For consumers who purchase new vehicles and plan to sell them in the first five years, choosing a model that retains the most value is a smart economic decision, especially when you consider depreciation is the single large 'cost' to owning a vehicle."
On average, new cars cost about $37,851 as of January 2020, according to Kelley Blue Book, up about 3.5% from last year. The prices of used cars, on the other hand, vary widely but tend to be cheaper. The average cost was $21,558 in July, according to Edmunds, up $708 from June.
Whether you're buying new or used, it's important to take the long view, Jedidiah Collins, a certified financial planner and author of the book "Your Money Vehicle," told Grow in June. Treat it as you would any other financial goal, he says, by budgeting, planning ahead, and saving regularly. Find out how much you need and "tackle it in bite-sized chunks."
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