Cost guide · Updated July 2026
Car depreciation calculator: what your car really loses each year
By the CarBudget team · Verified sources at the bottom of the page
To calculate depreciation on a car, subtract its current value from the price you paid and divide by the years you’ve owned it. As a rule of thumb, a new car loses 15–35% of its value in the first year and about 50–60% over the first three years. After that, expect roughly 10–15% per year. Depreciation is usually the single biggest cost of owning a car — bigger than fuel, insurance or servicing — yet it never shows up as a bill.
Most drivers obsess over the price at the pump and shop around for insurance, yet quietly ignore the largest number of all. Depreciation — the difference between what you paid for a car and what it’s worth when you sell it — routinely dwarfs every other cost of ownership. It just never arrives as an invoice, so it’s easy to pretend it isn’t there. This guide shows you how to calculate it, what a realistic figure looks like, and how to lose far less of your money to it.
What is car depreciation?
Depreciation is the loss of a vehicle’s market value over time. The moment a new car is registered and driven off the forecourt it becomes a used car, and its resale value drops immediately. From there, value keeps falling as the car accumulates age, mileage and wear. It is a real cost even though no money leaves your account each month: you feel it all at once, on the day you sell or part-exchange.
Several factors drive how fast a car loses value: mileage (higher mileage means lower value), age, condition and service history, the number of previous owners, fuel type and running costs, reliability reputation, and simple supply and demand for that model. Two identical cars can depreciate very differently if one is a sought-after colour with a full service history and the other isn’t.
Average car depreciation per year
Depreciation is not linear — it is front-loaded. The steepest drop happens early, then the curve flattens:
- Year 1: a new car typically loses 15–35% of its value. Fast-depreciating models can shed even more.
- Years 1–3: cumulative loss reaches roughly 50–60% of the original price.
- Year 4 onwards: the annual rate settles to around 10–15% of the car’s remaining value.
In practical terms, a car bought new for £30,000 might be worth around £19,500–25,500 after one year and only £12,000–15,000 after three — a loss of £15,000 or more that never appeared on any statement. That’s why the cars with the lowest total cost of ownership are often not the cheapest to buy, but the ones that hold their value best.
How to calculate depreciation on your car
The simplest way to work out what you’ve already lost:
Depreciation = purchase price − current market value
Annual depreciation = (purchase price − current value) ÷ years owned
To find your car’s current value, check what the same make, model, age and mileage is selling for on the used market, or use a free online valuation tool. To forecast future depreciation before you buy, apply the rule of thumb: knock off around 20% for the first year, then about 15% of the remaining value for each year after. This tells you the likely resale value at the point you plan to sell, and therefore the true cost of owning that particular car.
Depreciation is only one line in the total cost of ownership. To see the full picture alongside fuel, insurance, tax and servicing, use our car cost calculator or read the guide on how much it costs to run a car in 2026.
Why depreciation is the biggest hidden cost
Over a typical few years of ownership, depreciation often accounts for more than half of what a car costs you. It regularly exceeds spending on fuel and insurance combined. The reason it stays hidden is psychological: fuel and insurance are recurring payments you actively hand over, whereas depreciation accrues silently and is only realised once. Because you never “pay” it month to month, it rarely factors into the decision of which car to buy — which is exactly backwards, because the buying decision is the single biggest lever you have over it.
This is also why running-cost estimates alone are misleading. Two cars can cost the same to fuel and insure, yet one quietly costs thousands more because it loses value faster. The only way to compare honestly is on total cost of ownership per mile or per year, depreciation included.
How to lose less money to depreciation
- Buy used, ideally 2–3 years old. Let the first owner absorb the steepest first-year drop. You still get a modern, reliable car for a fraction of the depreciation.
- Choose models that hold value. Research resale values before you buy — reliability and demand matter more than the sticker price.
- Keep the mileage sensible. High mileage cuts resale value sharply, so avoid buying more car than your annual mileage justifies.
- Maintain a full service history. Documented servicing and good condition directly protect resale value — skipped services cost you twice.
- Keep it clean and standard. A tidy, unmodified car in a popular colour sells faster and for more.
- Track your real running costs. Depreciation may be invisible, but fuel, tax, insurance and servicing aren’t — and controlling them is how you keep the total cost of ownership down. CarBudget shows you those numbers in real time.
Sources and methodology
The figures in this guide are based on widely published used-car market data and depreciation studies:
- First-year and three-year depreciation ranges: used-car valuation guides and industry depreciation studies (e.g. cap hpi, iSeeCars long-term depreciation reports).
- Steep-then-flattening depreciation curve: motoring associations’ cost-of-ownership analyses (RAC, AA).
- Resale value drivers (mileage, condition, service history, demand): consumer motoring guides and valuation providers.
See what your car really costs you
Depreciation is only half the story. With CarBudget you log fuel, insurance, tax and servicing in seconds — or by snapping a receipt — and see your true cost per month and per year.