What is car depreciation?
Car depreciation refers to the drop in a vehicle’s market value over time. It represents the gap between what you originally paid for a car and what it’s worth today. Depreciation also affects other products, like mobile phones, computers, TVs, and refrigerators.
While the rate of depreciation varies between different car makes and models, a newer vehicle will generally depreciate faster than a used one. For example, a new car can depreciate in value by 10% to 15% as soon as you drive it out of the dealership, and a further 10% to 15% over the following year.
Once a vehicle reaches a certain age, however, its rate of depreciation tends to moderate, RedBook Global General Manager Ross Booth says.
Mr. Booth also notes depreciation isn’t solely determined by age, but also the used car market and economic conditions.
10 best cars for holding their value in Australia
If you want to avoid car depreciation (as much as possible), your choice of model can make all the difference. Based on RedBook’s residual value predictions, which utilise market and pricing data, the following makes and models may realise Australia’s slowest depreciation rates over the next three years:
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| Make and model | Predicted residual value if in good condition | Predicted residual value if in average condition |
|---|---|---|
| Suzuki Jimny | 90% | 86% |
| Toyota Landcruiser Prado | 90% | 86% |
| Toyota RAV4 | 85% | 82% |
| Toyota Yaris Cross | 85% | 81% |
| Land Rover Defender | 83% | 80% |
| Toyota Hilux | 82% | 78% |
| Lexus LBX | 81% | 77% |
| Toyota Corolla Cross | 81% | 78% |
| Ford Mustang | 81% | 77% |
| Toyota Corolla | 80% | 77% |
Source: RedBook Pricing Data (June 2026)
“Consumers often focus on badge, colour, or perceived prestige when considering resale value, but the reality is that supply and demand remain the dominant drivers” says Mr. Booth. He also notes that cars combining strong buyer demand, practical appeal, reasonable kilometres, and good condition usually deliver the strongest resale values.
On the other end of the scale, vehicles experiencing heavier depreciation are often those with narrower buyer appeal or where supply exceeds demand.
“These can include vehicles from brands with weaker market awareness or limited support networks, niche or specialist vehicles with smaller buyer pools, and vehicles in segments with limited appeal like large passenger sedans” Mr. Booth says.
In addition, he notes that economic factors like the higher cost of living and interest rates have been driving consumers towards more budget conscious vehicles in recent times.
Overall depreciation is becoming less predictable than it was historically. Changes in technology, global production patterns, pricing competition, and shifting consumer preferences have caused residual values to move more dynamically than traditional depreciation curves, Mr. Booth suggests.
What impacts car depreciation?
Some of the key factors affecting car depreciation rates include:
Newer models coming out
Cars can depreciate in value quickly if they’re frequently replaced by newer models. A model from a newer year, in better condition, and with lower kilometres is often more appealing than a similar model in the used car market.
Brand name
Vehicle brands and models that have strong demand (even if only perceived), like Toyotas, have historically strong resale values, says Mr. Booth.
Supply also plays a part, with lower supply coupled with strong demand also leading to higher resale values. A good example of this is the Suzuki Jimny.
The type of the vehicle
“In today’s market, mainstream SUVs remain among the strongest performers for retained value, sedans not so much.” Mr. Booth says.
Australian buyers favour SUVs due to their practicality, versatility, and broad appeal. Four wheel drive utes also tend to perform well for similar reasons.
The condition of the vehicle
Two major factors in determining the value, as well as the depreciation, of used vehicles are mileage and condition. Lower than average kilometres travelled and well maintained vehicles with complete service histories generally offer stronger resale values.
The colour of the vehicle
While it might sound vain, neutral colours like white, silver, grey, and black typically appeal to the broadest range of buyers. This can help to maximise their resale potential, as they’re often easier and, therefore, quicker to sell than a polarising ‘loud’ colour, according to Mr. Booth.
How does car depreciation affect electric and hybrid vehicles?
Hybrids have generally proven to be more price resilient than Battery Electric Vehicles (BEVs), and even outperform equivalent petrol vehicles. Mr. Booth notes this is likely due to the fuel efficiency of hybrid vehicles.
The depreciation of BEVs has attracted considerable attention over recent years. As battery technology evolves, older EVs can quickly appear more outdated than traditional vehicles, largely due to rapid technology improvements, substantial new model introductions, and aggressive price competition. However, it would be incorrect to suggest all EVs are poor performers, Mr. Booth says. Depreciation rates vary significantly by brand, model, and market positioning.
Looking ahead, depreciation of electric vehicles will increasingly depend on factors like battery durability, charging infrastructure, price competitiveness, and consumer adoption.
How to calculate car depreciation
When a car is used for business purposes, its depreciation might be able to be claimed as a tax deduction. There are the two methods the ATO uses when calculating depreciation on cars:
Prime cost (straight line) method
This assumes the value of the depreciating asset (the vehicle) decreases evenly over its lifespan. It can see you claim a fixed amount each year based on this formula:
Asset’s cost x (days held ÷ 365) x (100% ÷ asset’s effective life)
Days held refers to the time you owned the asset in a particular financial year, and the effective life of a car is generally eight years.
Diminishing value method
This method sees the asset depreciate more in the earlier years of ownership (as is typically the case with cars). The formula to work out diminishing value depreciation is:
Base value × (days held ÷ 365) × (200% ÷ asset’s effective life)
The base value will be the same as the asset’s cost in the first year, and will change each year going forward as the asset depreciates, becoming the original cost minus all the depreciation deductions you’ve previously claimed.
While these calculations are primarily used for business tax purposes, you may also find them helpful when estimating the depreciation of your personal vehicle, particularly if you want to sell the vehicle down the line.
How to slow a car’s depreciation rate
There’s a few things you can do to slow your car’s depreciation:
- Regularly service and clean your vehicle. It can also help to have an up-to-date logbook listing your car’s servicing history
- Keep your car’s mileage low, where possible
- Avoid modifying your vehicle
- Park undercover when possible, as sun exposure can gradually damage a car’s interior and fade its pain
- Avoid smoking or vaping inside your vehicle, as smoke and other odours may be difficult to remove
- Look for makes and models that hold their value better than others
- Consider buying a used car rather than a brand new one
- If you’re set on buying a new vehicle, consider one that’s in strong demand
- Consider selling your car privately rather than trading it in at a dealership
Why does car depreciation matter in Australia?
A new vehicle is typically a major purchase, and finding out your $50,000 car has depreciated to be worth only $38,000 after just one year could really sting. But that hip pocket pain can have more immediate financial impacts.
Here’s a few situations where car depreciation may affect you:
Gaps between your insurance payout and remaining loan balance
If you’ve taken out a car loan to purchase your vehicle, your lender will probably require you to cover the car with a comprehensive car insurance policy. However, if your vehicle is stolen or written-off in an insured event, depreciation may dictate how much you receive in a payout.
Most car insurance policies only cover a vehicle for its market value—what it would sell for on the open market at the time of the event. The market value is directly linked to your vehicle’s make and model, which means it’s also affected by depreciation. If you find that you still owe more on your loan than your vehicle’s market value, you may be left with a loan balance and no vehicle if your car is stolen or written-off.
You may be able to combat this by insuring your vehicle for an agreed value instead or looking for a policy that offers new for old car replacement.
Balloon payments
At the end of your car loan or lease, you may be required to pay a lump sum residual or ‘balloon’ payment. The amount is generally a percentage of what your car’s value was at the time you purchased it. This payment must be made in order to take outright ownership of the vehicle.
For car leases, the Australian Taxation Office (ATO) sets mandatory residual values based on the length of your lease. If your chosen vehicle has depreciated at a faster rate than the ATO’s calculated timeline, you may be left paying off a balloon payment that’s more than your car would be worth on the secondhand market.
Using the car for business
If you use your vehicle for business, you may be able to claim depreciation as a tax deduction. It’s important to note the ATO may have certain limits on how much you can claim though. Speak with a professional tax agent or contact the ATO for more information.
