Depreciation

Depreciation is the decline in what something is worth as it ages and gets used. For cars it is usually the biggest and most overlooked cost of ownership, larger than fuel, insurance, or interest. A new car commonly loses around 20 percent of its value in the first year and roughly half within five years, which is why driving a brand-new car off the lot is expensive even if you never have a repair.

Depreciation explains a lot of car-buying advice. Buying a two or three year old vehicle lets someone else absorb the steepest part of the curve. Leasing, by contrast, means you pay for depreciation directly during the years it is fastest. Models that hold value better, reflected in a high lease residual, cost less to own over time. Our buy versus lease playbook shows how depreciation drives the true cost of getting a car either way.