Used Car vs. New Car: The Real 5-Year Depreciation Numbers
Every personal-finance chart says a new car loses 40% of its value in five years. That number is real, but it's measuring the wrong thing. Government depreciation data, a peer-reviewed cost study, and current loan rates tell a smaller, more specific story: real savings for some vehicles, none at all for others.
Mirko6 min read
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Personal-finance content has one favorite car statistic: buy used, because a new car loses 40% of its value in five years. It's not wrong, exactly. But that number comes from a narrower kind of study than most people assume, and it looks different once you put it next to the government's own depreciation data, a peer-reviewed cost-of-ownership study, and current lending numbers. The drop is real, and it happens fast. The five-year figure is measuring something slightly different than you'd expect. And the used-car advantage turns out to be bigger for some vehicles and gone entirely for others.
The year-one cliff is real
The U.S. Bureau of Labor Statistics tracked automobile prices through the Consumer Expenditure Survey from 1996 through 2022 and found new cars lose 23.9% of their value in the first year alone. After that, the rate drops off fast: by year ten, a car is only losing about 4.9% a year. That's the real shape of the curve: steep at the start, flat later. It's the actual mechanism behind "buy it slightly used" as advice.
*The 5-year figure comes from a different kind of study than the 1-year figure, and needs the caveat explained below. Sources: BLS Monthly Labor Review, 2024; iSeeCars, 2026.
Why the "40% in five years" number needs an asterisk
Almost nobody checks how that 41.8% five-year number actually gets calculated. The widely quoted iSeeCars study compares what a car cost new to what similar used examples are asking for on the market today. That sounds like the same thing as tracking one car's value over time, but it isn't. Any car that got totaled, hit a lemon-law buyback, or got scrapped along the way simply isn't in that pool of "5-year-old used cars for sale" anymore. It dropped out of the sample. The number you're reading describes what the survivors are worth, not the expected outcome for whoever bought the car new.
The BLS numbers above don't have that problem. The agency explicitly reweights its estimate to account for cars leaving the vehicle fleet, so the 23.9%-to-4.9% curve is a more honest read of what actually happens to a car, on average, over its life.
What it actually saves you
Depreciation is the single biggest line item in owning a car. AAA put average annual ownership cost at $11,577 in 2025, and $4,334 of that, more than a third, is depreciation alone. That's before fuel, insurance, or a single repair bill.
So does buying 3-year-old used instead of new actually save you that money? A 2026 peer-reviewed study in Environmental Research Letters tracked exactly this question using real listing data, and the answer is yes, but modestly, for a typical gas-powered vehicle. Over 7 years of ownership, buying 3-year-old used instead of new saved $700 to $3,400. Real money, but nowhere near "half the price." Two things move that number. Used-car loans ran roughly 5 percentage points higher than new-car loans in 2026 (11.4% vs. 6.4%, per Experian), which eats into the sticker-price gap on a typical loan. And EVs are a different story entirely: the same study found used-EV buyers saved $6,700 to $13,000 over new, because new EVs depreciate so much faster that the used discount is dramatically bigger.
Not every segment plays by the same rules
The averages hide a wide spread. iSeeCars' 2026 data breaks it down by vehicle type:
Trucks and hybrids hold their value best, losing about a third of their MSRP over 5 years, while EVs lose more than half. Source: iSeeCars, 2026.
That same Environmental Research Letters study found one segment where the whole "buy used" logic flips: pickup trucks. New trucks actually beat 3-year-old used trucks on total cost of ownership, across every powertrain the researchers tested. If you're truck shopping, the standard advice doesn't apply.
The reliability trend nobody's pricing in yet
There's one more piece the depreciation charts don't capture, because it isn't really a pricing question. For three decades, buying an older used car got safer, not riskier: J.D. Power's Vehicle Dependability Study hit an all-time low of 52 problems per 100 vehicles in 2020. That trend just reversed, hard. The 2026 study recorded 204 problems per 100 vehicles, the worst score in 15 years, and the leading cause isn't engines or transmissions, it's infotainment and software, at roughly twice the rate of any other category.
That matters specifically for the used-car window everyone's pointed at. The 2022-2024 model years, the ones with the most in-car software, are exactly the cars aging into that 2-4-year-old sweet spot right now. The traditional used-car checklist, listen to the engine, check the transmission, doesn't cover the thing that's actually breaking most often on recent cars.
The bottom line
Buying used is still, on the numbers, usually the better financial decision. That part of the popular advice holds up. But the size of the advantage depends heavily on what you're buying: dramatic for EVs, modest for an ordinary sedan once financing costs are counted, and reversed for trucks. And the specific risk you're taking on with a used car has shifted, from the mechanical stuff a good ear can catch to software problems that are much harder to spot on a test drive. The discount is real. Just make sure you know what you're actually being paid for.
FAQ
How much does a new car really depreciate in the first year?
About 23.9%, according to U.S. Bureau of Labor Statistics data covering 1996 through 2022. That's the steepest single-year drop a car will see; the rate falls to under 5% a year by the time the car is ten years old.
Is it true that cars lose 40% of their value in five years?
The widely cited 41.8% figure, from a 2026 iSeeCars study, is accurate as reported, but it measures the asking price of used cars still on the market five years later, not one car's value tracked over time. Cars that were totaled or scrapped along the way aren't counted, so the real expected loss for a specific buyer is likely somewhat lower.
Do used EVs save more money than used gas cars?
Yes, by a wide margin. A 2026 peer-reviewed study found buying a 3-year-old used EV instead of new saves $6,700 to $13,000 over 7 years, compared to $700 to $3,400 for a typical gas vehicle, because new EVs depreciate faster.
Is buying a used truck still a good deal?
Not necessarily. The same peer-reviewed study found new pickup trucks beat 3-year-old used trucks on total cost of ownership across every powertrain tested, the one segment where the usual buy-used math doesn't hold.
Are used cars less reliable than they used to be?
The trend just turned. J.D. Power's Vehicle Dependability Study hit an all-time low of 52 problems per 100 vehicles in 2020, then reversed to a 15-year high of 204 in 2026, driven mostly by infotainment and software issues rather than mechanical failures.
