The Average New Car Depreciation

New cars cost a lot of money, yet they immediately lose part of their value when you drive off the dealer's lot because it changes from "new" to "used" at that point, according to the Buying Advice automotive website. This loss, called depreciation, continues for the life of the automobile, although the rate slows down over time. Depreciation sometimes causes problems if you have a car loan, depending on the financing terms.

Depreciation Rate

The average new car depreciation rate depends on the make and model of your vehicle, but the Cars Direct vehicle buying website explains that it averages 15 percent per year. The steepest drop in value happens when you take possession of your new vehicle, which reduces its value by 20 percent. The car depreciates about 15 percent during each of the next four years, then slows down.

Factors

A vehicle's exact depreciation rate is influenced by many factors, like reliability, demand for a particular model and even your state of residence. Car owners tend to keep reliable or popular vehicles, giving them more value. Consumer Reports advises that cars that are commonly used in rental company fleets depreciate more quickly because they get sold off at highly discounted prices when the companies are done with them.

Considerations

You influence your car's depreciation to some extent by the way you care for the vehicle. Automobiles with high mileage, body damage or mechanical problems are worth less than identical models that are in good shape, according to the website BuyingAdvice. A well cared-for car draws more money if you resell it to an individual or dealer or trade it in for another vehicle.

Warning

You can easily get upside down on your car loan if you buy an automobile with a high depreciation rate, make little or no down payment and stretch out the financing for several years. Being upside down means that you owe more for the vehicle than it is worth for resale, Bankrate writer Lucy Lazarony explains. You have to come up with the difference if you need to sell your car, or the dealer might roll the outstanding balance into your next car loan, putting you in an even worse position. If you cannot pay your loan and the car gets repossessed, you are responsible for the difference between the loan balance and the amount for which your bank sells the vehicle.

Prevention

You cannot prevent new car depreciation, but you can keep it from causing financial problems by making the biggest possible down payment and taking out the shortest possible loan, Lazarony advises. Consider buying a used car because the worst of the depreciation is over in the first few years. Keep the vehicle as long as possible, but keep it in good condition so it is worth more when you sell it.