How car depreciation changes the decision

Depreciation is the estimated drop in car value over time. A lower monthly payment can still be expensive if the car loses value quickly or if the loan balance stays high while the vehicle value falls.

The calculator lets you adjust the annual car value drop and see how cash, finance, and lease positions change year by year.

Depreciation is the drop in a vehicle's value over time. A car can be enjoyable and useful while still becoming worth less each year. That loss in value matters when comparing buying cash, financing, and leasing.

The calculator uses a compound annual value drop. For example, if a car drops 15% per year, year two is based on the value after year one, not the original price. That creates a smoother estimate than simply subtracting the same dollar amount every year.

If a $70,000 car drops 15% per year, the estimate is $59,500 after year one, $50,575 after year two, and about $31,000 after year five. That is compound depreciation: each year's drop is based on the current estimated value, not the original price.

If the annual drop is only 8%, the five-year estimate is about $46,000. If the drop is 25%, the five-year estimate is about $16,600. That is why changing the depreciation assumption can move the chart a lot.

With a cash purchase, depreciation shows up as the difference between what was paid upfront and what the vehicle may be worth later. There is no monthly loan payment, but the owned asset is usually worth less than the original cash paid.

When financing, depreciation should be viewed alongside remaining loan balance. If the car value drops faster than the loan balance, the owner may have limited equity or negative equity for part of the loan.

In a standard lease, the driver usually does not own the car at the end. Depreciation may affect the lease economics, but the calculator does not count leased vehicle value as an owned asset.

Estimates are for educational purposes only. This is not financial, legal, tax, insurance, lending, or vehicle-buying advice.