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Depreciation is an inevitable part of car ownership.
In fact, a new car depreciates the minute you drive it off the lot. Why is this important to know? Well, depreciation will affect your car’s value. And your car’s value can affect a range of scenarios, including how much cash you get when you sell or trade it in, if you’re able to refinance your car loan down the road, whether you end up owing more on your loan than your car is worth and how much you might get from your insurance company if your car is totaled.
Let’s take a look at what car depreciation is and how it comes into play while you own the vehicle. We’ll also introduce you to Credit Karma Auto, which you can use to estimate your car’s current value and projected loss of value over time.
What is car depreciation?
Car depreciation is the decline in the value of a vehicle over time. It kicks in as soon as you get behind the wheel of your brand-new car for the first time.
Depreciation rates can be pretty steep for new cars. It’s not uncommon for some vehicles to lose as much as 25% of their value in the first year. Most cars lose about 15% of their value each year.
If you have an auto loan, you’ll want to pay very close attention to your car’s rate of depreciation. Depreciation is one factor that could potentially cause you to become upside down on your car loan, especially if your down payment represented a small portion of the vehicle’s cost or if you chose a long-loan term.
It’s important to know if you’re upside down on your loan. For example, if you plan to sell or trade in your vehicle, owing money on your car loan complicates things — depending on your lender, you’ll typically need to pay off your loan before the sale or trade-in can be completed.
How can I see how much my car has depreciated?
If you’re about to sell or trade in your car, you’ll want to get a sense of how depreciation has affected its resale value. Considering your car’s depreciation, along with a range of other factors like its condition and how you plan to sell it, can allow you to set an appropriate asking price for potential car buyers.
Edmunds, Kelley Blue Book and NADAguides offer tools that estimate your car’s current market value. You can compare those estimates to the price you paid for the vehicle to get a sense of how much it’s depreciated since you bought it.
Credit Karma Auto also displays National Automobile Dealers Association, or NADA, estimates of your car’s value today, along with a look at how it might depreciate over the course of your loan term. Comparing your car’s estimated value to what you owe on your car loan can give you a general idea of whether you’re upside down on your car loan — or at risk.
Using Credit Karma Auto to see your car’s depreciation
Here’s how to use Credit Karma Auto to research your car’s depreciated value.
- Log in to Credit Karma.
- Click on the Auto icon that appears below your credit scores or on the Auto link at the top of the page. If you’re on your mobile phone, the icon appears above your scores.
- If you haven’t already, match your vehicle to your Credit Karma profile so you can see your car information. You’ll have the option to consent to a request a pull of your vehicle data, or you can simply add the vehicle on your own.
- If you have already matched your vehicle to your profile, click on “Go to my auto profile.”
- If you have more than one vehicle, click on the name of the vehicle that you want to research.
You’ll land on a page with the following information about your car:
Current loan balance
If you finance your car and have linked your auto loan to your vehicle, you’ll be able to see your current auto loan balance. You can click on the arrow that appears in the upper right side of the box to see more details, including estimates of your annual percentage rate, or APR, monthly payment, loan term, lender name, number of remaining payments and the month and year your loan is estimated to be paid off.
Your car’s estimated value
Below any loan information, you’ll see your car’s estimated current value today, based on data from NADA. Next to the current value is a dollar figure with an arrow that points down. This figure shows how much your car has depreciated over the past month.
Your car’s estimated depreciation
The graph below your car’s estimated current value shows your vehicle’s estimated depreciating value over time, along with a line representing your estimated loan balance over your loan term (if you finance your car). This visual can help you see if you might be upside down on your car loan — or if you might become upside down. If the graph line showing the loan balance is higher than the line showing your car’s value, it could mean you owe more on the loan than the car is worth.
To see more details, click on the graph. You’ll be taken to a page that allows you to drag your cursor across the graph and see how your car’s value might change from month to month.
You’ll also be able to see on this page your car’s estimated trade-in value and private-party value.
Estimating your car’s depreciation and current value can help you set a reasonable asking price and give you the confidence to negotiate with authority when selling or trading in your vehicle.
This information can also help you determine whether you’re upside down on your auto loan and take action, such as making additional principal-only car loan payments (if your lender allows) to avoid bigger financial problems down the road.