The '20% First Year' Car Depreciation Rule, Explained

Why year one loses so much more than year two

The moment a new car is driven off the lot, it legally and practically becomes a "used" car, even with zero miles on it — and used cars sell for meaningfully less than new ones of the same model, regardless of actual wear. That single transition from new to used accounts for a disproportionate share of a car's entire first-year value loss.

Why the rate slows down afterward

Once a car is established as "used," further depreciation tracks more closely with actual wear, mileage and age rather than a one-time status change — which is why the widely cited rule settles into a steadier roughly 15% of remaining value per year for the next several years, rather than repeating the sharp 20% drop annually.

Why this is a rule of thumb, not a formula

Real depreciation varies enormously by brand reputation, reliability record, fuel type, and even broader used-car market conditions — strong used-car demand in recent years has actually made real-world 5-year depreciation noticeably gentler than the classic 20%-then-15% rule would predict. Treat the rule as a reasonable starting estimate, not a precise prediction for any specific vehicle.

Estimate your car's value

Our Car Depreciation Calculator applies the classic rule by default, with adjustable rates if you have better data for your specific make and model.