Car Depreciation
Calculate car value after depreciation
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What the defaults give
$35,000 at 20% a year for 3 years is worth $17,920.
The loss is $17,080 — 49% of what was paid, and the steepest part of the curve is the first year.
The formula
Value = price × (1 − rate)ⁿ
Lost = price − value
Depreciation compounds: each year takes its percentage off the previous year's value, not the original price. That is why the loss is front-loaded. Year one removes $7,000 from $35,000; year three removes only $4,480, because 20% of a smaller number is smaller.
Worked examples
$35,000, 3 years, 20% → $17,920 (lost $17,080)
$35,000, 1.5 years, 20% → $25,044 (lost $9,956)
$35,000, 6 years, 20% → $9,175 (lost $25,825)
$35,000, 3 years, 10% → $25,515
$35,000, 3 years, 40% → $7,560
$70,000, 3 years, 20% → $35,840
Rate matters more than any other input. Halving it from 20% to 10% keeps an extra $7,595 of value after three years; doubling it to 40% removes another $10,360. Over six years the same 20% rate leaves under a third of the original price, which is why the end of a long finance term and the end of the warranty tend to coincide with the steepest part of the loss.
What real curves look like
A new car typically loses 15% to 25% in the first year and 10% to 15% a year after that. A flat percentage is a simplification: the first year is worse because the car stops being new, and the curve flattens once the value approaches scrap plus utility. Vehicles with strong residuals — some trucks, some hybrids, limited-run models — lose noticeably less, and models facing a redesign or a reputation problem lose more.
Mileage, service history, accident record and colour all move the actual resale figure by a few percent in either direction. A car with double the average mileage can sit 15% below the book value of an equivalent.
Why it matters for a loan
Compare the value here with the remaining loan balance. If the car is worth less than the balance, the loan is underwater: selling it does not clear the debt, and a total loss payout may not either. That gap is the reason gap insurance exists, and it is largest in the first two years of a long loan.
The same arithmetic explains why buying two or three years old is usually cheaper per year of ownership: the steepest depreciation has already happened, and the curve from there is flatter.
Frequently Asked Questions
How much is a $35,000 car worth after 3 years?
$17,920 at 20% a year. That is 49% of the purchase price, or $17,080 of depreciation.
Why is the first year the worst?
The car stops being new the moment it is registered, and the percentage is taken from the largest base. Later years remove 20% of a smaller number.
Is depreciation linear?
No, it compounds. A flat percentage each year produces a curve that falls fast at first and flattens as the value approaches scrap.
What is a typical depreciation rate?
15-25% in the first year, then around 10-15% a year. The 20% default is a reasonable average for a mainstream new car.
How does depreciation affect a car loan?
If the car is worth less than the remaining balance the loan is underwater. That gap is largest early in a long loan and is what gap insurance covers.
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