Ask someone what their car costs to run and you'll get fuel, insurance, tax, servicing. Almost nobody mentions depreciation, and for most cars in most situations depreciation is larger than all the others combined.
It's invisible because you don't write a cheque for it. You experience it once, at the moment you sell, and by then it's a fact rather than a decision.
The rough shape of it
Depreciation curves vary enormously by model, but the general pattern is consistent: the steepest loss happens early and it flattens over time.
A new car typically loses a substantial fraction of its value in the first year and a large majority over the first several years. The loss in year one alone frequently exceeds a year's fuel and insurance combined.
After five or six years the curve flattens considerably. A car losing a modest amount per year at that age is a much cheaper thing to own, even accounting for higher maintenance.
Which produces the central insight: the cheapest way to own a car, in pure cost terms, is generally to buy one that somebody else has already taken the depreciation hit on, and keep it a long time.
What drives the differences
Not all cars depreciate at similar rates, and the variation is large enough to swamp everything else in a purchase decision.
Brand perception. Some marques hold value substantially better for reasons that are partly about reliability reputation and partly about desirability.
Fleet and rental volume. Models sold heavily to fleets flood the used market three years later, which depresses values. A car you see everywhere as a hire car will be cheap used, which is bad if you bought new and good if you're buying used.
Discounting at purchase. Heavy manufacturer discounts on new cars pull down used values for the same model, because a used example competes against a discounted new one.
Fuel type and technology transitions. Vehicles perceived as being on the wrong side of a transition depreciate faster, and this has been volatile in recent years as policy and infrastructure have shifted.
Specification. Options rarely return their cost. A car loaded with expensive extras usually sells for only marginally more than a basic one, meaning the options depreciate faster than the car.
The finance complication
Most new cars are bought on finance, and the common structures interact with depreciation in ways worth understanding.
A personal contract purchase sets a guaranteed future value at the outset. You pay the difference between the price and that value, plus interest, over the term. At the end you can hand it back, pay the balloon to keep it, or trade in.
The effect is that you're paying for the depreciation directly, which is honest, and that the risk of the car being worth less than projected sits with the finance company, which is genuinely valuable.
The trap is the cycle. Handing back and starting again means permanently paying the steepest part of the curve, forever, on a succession of cars. That's a legitimate choice if you value always driving something new, and it is the most expensive way to have a car.
The mileage question
Mileage affects value substantially, and there's an interaction people miss.
If you drive very little, a new car is a particularly bad purchase — you're paying the time-based portion of depreciation and using none of the vehicle. Very low mileage on an older car doesn't recover value proportionally either, since age matters independently.
If you drive a great deal, depreciation matters less per mile, and other factors — fuel economy, reliability, servicing costs — become relatively more important.
So the right answer differs by usage pattern, and the standard advice ignores this entirely.
What I'd actually do
Work out cost per mile over the period you'll own it, including projected depreciation, and compare options on that basis. It's the only number that lets you compare a cheap old car against an expensive new one honestly.
For most people the answer lands on something two to four years old, bought outright or on cheap finance, kept for a long time. That combination avoids the steepest depreciation, still gets modern safety equipment and reasonable reliability, and doesn't commit you to a permanent cycle.
The exceptions are real. If you need absolute reliability for work, if manufacturer warranties matter to you, or if a specific new model has an unusually strong residual value, the calculation shifts.
But the default assumption — that a new car is a reasonable way to spend money and a used one is a compromise — is worth examining. In pure financial terms it's close to backwards.
The insurance write-off trap
One depreciation-adjacent risk deserves mention because it catches people out. If a car is written off, the insurer pays market value at that moment, not what you paid or what you owe.
On a car bought new with finance, market value in the first couple of years can be below the outstanding balance. The insurer settles, the finance company is still owed the difference, and you are personally liable for a gap on a car you no longer have.
Guaranteed asset protection cover exists specifically for this, and whether it is worth buying depends entirely on how steep the depreciation curve is for your particular car and how much you borrowed. It is one of the few add-on products at a dealership that is sometimes genuinely justified, which is not something one gets to say often.