Depreciation: the biggest cost of owning a car is not a payment you make

Ask someone what their car costs them and you will hear about the loan, the fuel, the insurance and the servicing. Those are the costs that arrive as demands for money. There is a larger one, and it never asks for anything.

It is depreciation: the fall in what a thing is worth while you own it. No invoice arrives. No direct debit leaves. The money goes out through the object rather than through the account, so it is invisible right up to the day you sell.

The size of it

AAA has tracked the cost of driving since 1950, and depreciation is one of the six lines it counts, alongside fuel, maintenance, insurance, registration and loan interest [12]. In its 2025 study, the average vehicle lost $4,334 of value in a single year [1].

Set that against the total. AAA puts the all-in cost of a new car at $11,577 a year [12][1]. Depreciation is roughly 37% of it, and AAA names it the single largest cost of running a car.

The itemised figures show what it is competing with. For a medium sedan driven 15,000 miles a year [2]:

• Depreciation: $3,462
• Fuel and maintenance: $3,455
• Insurance: $1,572
• Loan interest: $854
• Licence, registration and taxes: $613

Two lines dominate, and they are seven dollars apart. One of them is the thing drivers complain about hardest. The other has never come up.

Be precise about this, because it matters. On a small sedan, fuel and maintenance actually wins: $3,020 against $2,629 [2]. Depreciation is not always the biggest line.

What is always true is that it is the biggest one nobody bills you for. Set it against only the costs that arrive as demands for money. On a medium sedan it beats insurance, interest and registration combined. On a small one it comes close behind them [2].

The shape of the curve

The loss is not spread evenly. Kelley Blue Book puts the first-year drop at about 20% of value, after which the rate slows [4]. NerdWallet gives a range of 15% to 20% in year one and around 15% a year over the next four [1]. Over two years, Kelley Blue Book puts the total at roughly 30% [5].

The steepest part happens almost immediately, when a new thing becomes a used thing. After that the curve flattens. One analysis found a distinct price drop at four years, and a maintenance-cost jump of 31% at year five [10]. That combination is why the cheapest years to own are rarely the first ones.

The rate is a market price, not a law

Here is the part that surprises people. Depreciation is not mechanical decay. It is whatever the second-hand market will pay, and that moves.

Edmunds tracks what a three-year-old car fetches as a share of its original sticker price. In the first quarter of 2026 it was 66%, down from 69% a year earlier. In 2022, at the peak of the pandemic shortage, it was 81%. Before the pandemic, the typical figure was about 60% [3].

Read that as loss rather than retention and the range is stark. The same car, over the same three years, has cost its owner anywhere between 19% and 40% of the purchase price. The only variable was when they happened to be holding it.

Apply today’s rate to today’s prices. A new car at Edmunds’ average sticker of $51,323 [3], losing 34% over three years, would be worth about $33,900 at the end of it. That is roughly $17,400 gone, or about $485 a month before a drop of fuel. (That is arithmetic from the two cited figures, not a separate measurement.)

Two cars, one price, different curves

Depreciation varies enormously between things that cost about the same. AAA’s per-type figures show a medium sedan losing $3,462 a year if it runs on petrol and $7,088 a year if it is electric [1]. That is more than double, for a vehicle in the same class.

Compact SUVs show the same split: $3,554 petrol against $4,960 electric [1]. Pickup trucks depreciate fastest of all in absolute terms, at $6,041 a year [1].

None of that is a verdict on any vehicle. It is the point that the purchase price tells you only half of what a thing will cost, and the other half is not printed anywhere near it.

Where it does get a bill

There are two places the invisible cost becomes visible, and both are instructive.

The first is a lease. When you lease, you are not buying the car; you are paying for the slice of its life you use. The contract states an agreed value now and a residual value at the end, and bills you the gap. Bankrate’s worked example takes a $25,000 capitalised cost against a $12,500 residual and produces a depreciation fee of $479.17 a month as an explicit line on the payment [7]. A $30,000 car expected to lose $10,000 over a 36-month lease bills at about $280 a month [7]. That is depreciation, itemised.

The second is business tax. A company that buys a van can deduct its fall in value against profit. Straight-line depreciation on a $35,000 van with a $10,000 salvage value over five years gives $5,000 a year [15]. Section 179 lets some businesses write the whole thing off at once instead: a $50,000 machine deducted in year one rather than $10,000 a year for five [16]. Bonus depreciation was raised from 50% to 100% by the 2017 tax law, with a phase-out set for the end of 2027 [17].

So the same loss is a formal, deductible expense with its own tax form for a business, and nothing at all for a household. The difference is not in the physics of the object. It is in who was given a way to count it.

Where it catches people

Because the value falls fastest early and loans now run long, the two lines cross. Experian put the average new-car loan at 69.48 months in the first quarter of 2026, with 71.83% of new buyers signing for 61 months or more [8]. Meanwhile the car sheds 20% in year one [4].

That produces negative equity, also called being underwater: owing more than the thing is worth [20]. The Wall Street Journal reports the average amount carried by borrowers with negative equity has risen more than 40% since 2021 [9]. One dealer described a customer owing about $87,000 on a pickup truck worth roughly $47,000 [9].

It compounds when the gap is rolled into the next loan. Some lenders allow borrowing of 125% to 130% of a vehicle’s value, which lets the shortfall move across to the new car [5]. Loan-to-value is simply the loan set against what the thing is worth: $30,000 borrowed on a $35,000 car is 86% [23].

Leasing avoids this by construction. Because you never own the asset, you cannot end up owing more than it is worth [6].

The honest other half

Depreciation is not money burned. It is the price of use. The car did three years of work. Paying $17,400 for that is a transaction, not a loss, and the alternative was not free either.

Not everything falls. Assets divide into those that depreciate and those that appreciate [14]. Land, property and some collectables can rise. Cars, phones and appliances almost always fall, though a few models hold value unusually well.

And the fall is not always gentle. Value can collapse when a thing stops being wanted, not when it wears out. BlackBerry’s shares went from a high of $147 to around $5.58 by May 2026 as rivals took the market [18]. Useful life estimates get revised for exactly this reason: a technology can be made obsolete years before it breaks [21].

It is also worth separating from a related loss. Vehicles, property and art are slow to sell, and a rushed sale can knock money off on top [22]. That discount comes from your hurry. Depreciation comes from the calendar, and it is there whether you sell today or never.

One more honest limit. The number in an accounting system is not the number the market will pay. A trailer carried at a book value of $73,000 might sell for $80,000 or $65,000; the balance sheet says $73,000 regardless [13]. Depreciation schedules are estimates, and the resale counter is where the real figure is settled.

What is genuinely uncertain

Averages hide a lot. AAA’s figures assume 15,000 miles a year and a 60-month loan at the national average rate [1]. Depreciation depends on the model, the mileage, the condition, the fuel type and the state of the used market on the day you sell.

Prices themselves are unsettled. The average new car transaction price stood at $49,758 in June, on Kelley Blue Book’s measure [19]. Edmunds puts the average sticker price at $51,323 [3]. The Bureau of Labor Statistics gives an average price of $52,183 [12]. Those are three different counting conventions, not a contradiction: what buyers actually paid, what makers ask, and a statistical average price. The average used car ran $27,027 in June on Cox Automotive’s numbers [10], and a three-year-old car specifically averaged $31,548 [3].

The broader picture is that ownership has got dearer. One index put the cost of owning a car up 40.59% since January 2020, having tracked general inflation for the two decades before that [11]. The average vehicle on American roads is now 12 years old, a record [10] - which is one rational response to a steep early curve.