What is car depreciation, and how do you calculate it?

Core Insights - Car depreciation is the loss of a vehicle's value over time, primarily due to aging and wear and tear, which begins the moment a car is driven off the dealership lot [1][2] - Certain makes and models depreciate at different rates, with some vehicles losing nearly 30% of their value in the first two years and then about 8% to 12% per year thereafter [3][4] Group 1: Factors Affecting Car Depreciation - The depreciation rate is influenced by several factors including make and model, mileage, vehicle age, maintenance and repairs, accident history, and market demands [10] - Popular brands like Toyota and Honda tend to retain their value better due to their reputation for reliability and low maintenance [10] Group 2: Financial Implications of Depreciation - Vehicle depreciation impacts auto insurance needs, as insurers base payouts on the actual cash value (ACV) of the vehicle at the time of loss, which is affected by depreciation [6] - Gap insurance may be necessary for car owners who owe more on their vehicle than its depreciated value, especially if they made a small down payment or have a long loan term [7][8] Group 3: Strategies to Minimize Depreciation - Choosing a vehicle with low depreciation rates, buying used cars, maintaining the vehicle properly, and limiting mileage can help minimize depreciation [25][26][27][28] - Avoiding aftermarket modifications and frequent trade-ins can also help retain a vehicle's value over time [32][33] Group 4: Depreciation in Leasing vs. Buying - When leasing, the bulk of monthly payments goes toward depreciation, and the residual value at the end of the lease is crucial for determining costs [21][23] - Buying a vehicle typically involves higher monthly payments but allows for building equity, especially if the vehicle depreciates slowly [21][22]