How Vehicle Depreciation Affects Your Net Worth (And What to Do About It)

Your Car Is Losing Money Right Now

That vehicle sitting in your driveway is quietly shrinking your net worth — every single day. Unlike your home, retirement accounts, or investments, a car is almost always a depreciating asset. It loses value the moment you drive it off the lot, and it never stops.

Most people dramatically overestimate what their car is worth. That gap between what you think your car is worth and what it's actually worth? It's silently distorting your net worth picture. Let's fix that.

How Fast Do Cars Depreciate?

The numbers are brutal. On average, a new car loses:

20% of its value in the first year
15% more in the second year
About 10-15% per year for years three through five
Around 60% of its value by year five

A $40,000 new car is typically worth about $16,000 after five years. That's $24,000 in lost value — almost $5,000 per year, or roughly $400 per month — before you spend a dime on gas, insurance, or maintenance.

Some vehicles hold value better than others. Trucks and certain SUVs tend to depreciate more slowly, while luxury sedans and electric vehicles with rapidly evolving technology can lose value even faster. But the direction is always the same: down.

The True Cost of Car Ownership

Depreciation is the largest cost of owning a car, and most people completely ignore it because it doesn't show up as a monthly bill. But it's very real money.

Here's what a typical car actually costs per year when you add it all up:

Depreciation: $4,000–$6,000
Insurance: $1,500–$2,500
Fuel: $1,500–$2,500
Maintenance and repairs: $800–$1,500
Registration and taxes: $200–$500
Loan interest (if financed): $500–$2,000

Total: roughly $8,500–$15,000 per year, depending on the car and how much you drive. Depreciation alone is often 30–50% of that total. It's the expense nobody budgets for because it doesn't come with a statement.

New vs. Used: The Net Worth Math

This is where the math gets interesting — and where buying decisions can make a massive difference to your long-term wealth.

Buying new at $40,000

After 5 years, worth ~$16,000
Depreciation cost: $24,000
If financed at 6% for 60 months, total interest: ~$5,200
Total cost of depreciation + interest: ~$29,200

Buying a 3-year-old version at $24,000

After 5 years of ownership (car is now 8 years old), worth ~$9,000
Depreciation cost: $15,000
If financed at 7% for 48 months, total interest: ~$3,600
Total cost of depreciation + interest: ~$18,600

That's a $10,600 difference over five years — money that could go into savings, investments, or paying down debt. Over a lifetime of car purchases, buying gently used instead of new can easily save you $100,000 or more.

The steepest part of the depreciation curve happens in years one through three. Someone else absorbs that hit when you buy used. You get the same reliable transportation at a fraction of the net worth impact.

How to Accurately Include Vehicles in Your Net Worth

Here's where most people go wrong: they either overvalue their car or leave it out entirely. Both mess up your financial picture.

Use current market value, not purchase price

What you paid for the car is irrelevant. Your net worth needs to reflect what you could sell it for today. Look up your car's current private-party value online. Be honest about the condition.

Update the value regularly

Car values don't stay flat. Update your vehicle's value every three to six months, or at least every time you recalculate your net worth. A value that was accurate six months ago might be off by $1,000–$2,000 now.

Don't forget the loan balance

If you owe money on the car, your net worth calculation needs both sides:

Asset: Current market value of the vehicle
Liability: Remaining loan balance

Your vehicle's net contribution to your net worth is the difference. A car worth $18,000 with a $22,000 loan balance is actually a negative $4,000 on your balance sheet. This is called being "underwater," and it's more common than people realize — especially with longer loan terms and low down payments.

Consider leaving out older, low-value cars

If your car is worth less than $3,000–$5,000, some financial planners suggest leaving it off your net worth entirely. At that point, it's more of a tool you use than a meaningful asset, and including it just adds noise to your calculations.

Smart Strategies to Minimize the Damage

You need a car — most people do. But you can be strategic about how vehicles affect your wealth:

Buy two to three years used. You skip the worst depreciation while still getting a reliable, modern vehicle with warranty coverage remaining.

Keep cars longer. The cheapest years of ownership are years five through ten, when depreciation slows dramatically but the car still runs well. The average car on the road today is over 12 years old for a reason.

Put more down, finance less. A larger down payment means less interest paid and a lower chance of going underwater on the loan. Aim for at least 20% down.

Avoid the upgrade cycle. Trading in every three to four years means you're perpetually riding the steepest part of the depreciation curve. Each trade-in resets the clock on your biggest losses.

Skip the extras that don't hold value. Dealer add-ons, premium paint protection, and extended warranties rarely increase resale value by what you paid for them.

The Bigger Picture

A car is a tool, not an investment. Treating it like one — or ignoring its declining value — leads to a distorted understanding of your financial health.

When you track your net worth accurately, vehicles serve as a useful reality check. Watching your car's value drop month after month is a powerful reminder to invest the difference between what you could spend on a car and what you should spend.

With Nova, you can track your vehicle's current value alongside all your other assets and liabilities. Update it in seconds, and see exactly how depreciation is affecting your overall net worth picture. No guessing, no inflated numbers — just a clear view of where you actually stand.

The goal isn't to obsess over your car's value. It's to make smarter decisions about the second-largest purchase most people ever make — and redirect the savings toward assets that actually grow.