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Car Depreciation: Why a 3-Year-Old Car Often Costs Less per Year

By Smart Budget Sheets November 10, 2026
Illustrative depreciation curve for $25k-$50k cars and what it means per year of ownership.

Depreciation is usually the biggest cost of owning a car, bigger than fuel or insurance in the first years. It doesn’t show up as a bill, so it is easy to ignore.

1. An illustrative curve

Assume a car loses about 20% of its value in year one and about 15% a year after that. Real numbers vary by model, mileage and condition.

Years owned $25,000 new $35,000 new $50,000 new
1 about $20,000 about $28,000 about $40,000
3 about $14,450 about $20,230 about $28,900
5 about $10,440 about $14,620 about $20,880
7 about $7,540 about $10,560 about $15,090

2. What that means per year

On the $35,000 car, the first three years cost about $14,770 in lost value, close to $4,900 a year. Buying the same car at three years old and keeping it to year seven loses about $9,670 over four years, about $2,420 a year.

3. Why it matters for loans

Fast early depreciation plus a long loan can leave you owing more than the car is worth. A larger down payment or a shorter term keeps the balance below the value.

4. Reduce the hit

  • Buy slightly used, after the steepest drop.
  • Choose models known for holding value.
  • Keep mileage reasonable and service records complete.
  • Keep the car longer: the yearly loss shrinks over time.

5. Count it in the budget

When comparing cars, add yearly depreciation to fuel, insurance and maintenance. That total, not the monthly payment, is the real cost of the car.

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General information, not financial advice. Figures are rounded examples.

#personalfinance #budgeting #cars
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