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Cars and trucks tend to lose value as they age and experience wear and tear through everyday use. This loss of value is known as depreciation. How much these vehicles tend to depreciate will vary. For example, trucks tend to hold their value better than cars.

That said, depreciation depends on a number of factors, such as make and model, age, mileage, and accident history. Here’s a closer look at what impacts car and truck value, and how depreciation can differ between the types.

What Is Vehicle Depreciation?

Cars and trucks lose value each year due to normal wear and tear. The rate of depreciation will vary depending on the make and model of a car. However, the first year tends to see the greatest depreciation, when cars lose as much as 20% of their starting value. For that reason, some consumers believe it’s wiser to buy a used car than a new car. Within the first five years of ownership, a vehicle can depreciate by as much as 60%.

Depreciation is not necessarily an accurate representation of wear and tear on a vehicle. You may find that after a number of years, your car has lost significant value even if it’s in pristine, like-new condition. Deprecation will continue to affect the value of your car until it reaches $0 on paper. At that point, your car no longer has any equity, and is not considered a financial asset. The only value left is the value of the metal for scrap.

Depreciation is an important factor to understand whether you are buying a used car, a new car, or if you plan to lease a vehicle. When leasing a car, your monthly payment will cover the cost of depreciation.

How Is My Car Value and Truck Value Depreciation Calculated?

There are various sources that supply car depreciation figures, including Kelley Blue Book and Edmunds. Each company has its own algorithm that accounts for the factors that affect depreciation, such as:

Mileage

How much a car or truck has been driven is often seen as a proxy for wear and tear. The more something is used, the more likely it is to wear out. As a result, vehicles that have been driven less tend to fetch higher values.

Make and Model

You can think of the make and model of a vehicle as the brand and specific product on offer. For example, Toyota is the make, while Tacoma is a specific type of truck the company builds. There may be a series of letters and numbers after the model name that further delineates the trim level of the vehicle. Trim level can refer to different features, engine size, or materials used in the making of the car or truck.

Some makes and models are more popular than others, and some models have higher trim levels. Both can help a vehicle hold its value longer.

Reputation

A vehicle’s reputation for safety and reliability can play a big role in its popularity. The higher the demand for a particular make and model, the more slowly it may depreciate.

Larger vehicles are typically safer than smaller cars, which helps explain why trucks tend to hold their value longer.

Fuel Economy

More fuel-efficient vehicles may also hold their value better than gas-guzzling counterparts, especially when fuel prices are high. Diesel trucks may depreciate more slowly than gasoline-powered cars and trucks because they tend to have more powerful engines, better fuel economy, and emit less carbon dioxide. A gallon of diesel contains roughly 10% to 15% more energy than a gallon of gasoline, and as a result, a diesel engine can go 20% to 35% farther on a gallon of fuel.

Local Market

Your local automobile market can also have a big impact on how much your car depreciates. For example, trucks may be in higher demand in rural areas, while cars may be more popular in urban settings. Vehicles with four-wheel drive may be more sought after in places with snow, while convertibles may be in higher demand in warm, sunny climates.

You may be asked for your zip code when you look up the value of your car. This can help valuation companies zero in on how much your car is worth in your locale. You can also use a money tracker app, like SoFi’s, to discover real-time vehicle values in just a few clicks.

Recommended: What Credit Score Is Needed to Buy a Car?

Average Truck Value vs Car Value Depreciation Comparison

Cars and trucks begin to depreciate as soon as they leave the lot. As mentioned above, they can lose as much as 20% in the first year alone, and up to 10% each year after that. By year five, a vehicle may have depreciated by as much as 60%.

That said, various types of cars and trucks tend to depreciate at different rates. And depreciation can vary a lot depending on current market conditions. For instance, iSeeCars research found that all types of vehicles held their value better in 2023 than they did in 2019, thanks in part to fewer new cars being produced and fewer used cars for sale.

In 2023, the average five-year-old vehicle depreciated by 38.8%, compared to 49.6% in 2019. And trucks held their value best of all vehicles, depreciating just 34.8% over five years in 2023, compared to ​​42.7% in 2019.
Here’s a look at of how different types of vehicles have depreciated over a five-year span:

Recommended: What Should Your Average Car Payment Be?

The Takeaway

While all cars are holding their value better than they did in 2019, recent research confirms that trucks hold their value the best of all vehicles. If you plan to trade in your car or truck after a few years, consider buying a vehicle that is likely to hold its value longer to get a better trade-in value.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

At what mileage do cars lose value?

Cars and trucks unfortunately start to lose value as soon as you drive them off the lot. After that, depreciation is calculated each year.

Does mileage affect car value?

Mileage is one of the most important factors that go into car valuation. The higher the mileage, the more wear and tear the vehicle is presumed to have, and the less the vehicle will be worth.

At what age does a vehicle depreciate most?

Cars and trucks depreciate most in their first year, when they can lose 20% or more of their value.

Photo credit: iStock/timnewman

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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The federal funds rate is a key interest rate set by the Federal Reserve, and likely the most closely watched indicator of where the U.S. economy may be headed next. Changes to the federal funds rate provide insight into the Fed’s position on monetary policy and how it plans to respond to economic factors, including inflation and employment levels.

In September, 2024, the Fed announced a rate cut of 50 basis points (a half percentage point), lowering the federal funds rate to 4.75% to 5%. This was the first rate cut made in four years, marking a pivotal shift from the Fed’s policy of holding higher interest rates in place to battle the persistent inflation that followed COVID-19 rate cuts.

The Fed also signaled rates could drop an additional 50 basis points by the end of 2024, with more to follow, as it drives toward a more neutral rate.

Changes to the federal funds rate almost invariably create a ripple effect of changes throughout the economy, impacting interest rates on loans, mortgages, and savings. Here’s a closer look at the Federal Reserve and how its economic outlook and policies can impact your accounts.

Learn more: SoFi’s Liz Young Thomas Looks at the Fed’s September Statement

Q: What Is the Federal Reserve?

A: The Federal Reserve System was founded by Congress in 1913, with the primary goal of promoting the stability of the U.S. banking system. Since then, the Fed’s mandate and methods have evolved — today the work includes regulating financial institutions, directing monetary policy, managing inflation, and keeping employment rates high. And one of the key levers it pulls to those ends is adjusting the federal funds rate.

Q: What Is the Federal Funds Rate?

A: The federal funds rate is a benchmark interest rate that guides the interest rates U.S. banks use when lending excess reserves to other banks overnight. Banks frequently borrow money from one another to ensure they have sufficient reserves to cover consumer withdrawals and other commitments. While changes to the federal funds rate most immediately impact the rates banks use for overnight lending, they influence consumer interest rates as well.

The federal funds rate is set by the Federal Open Market Committee (FOMC), an arm of the Federal Reserve System responsible for setting a range of monetary policies that can influence inflation, economic growth, and the job market. The FOMC is made up of 12 members who meet approximately every six weeks to review their stance on economic policies, including whether they should adjust the federal funds rate.

Q: What Factors Influence the Fed’s Rate?

A: The FOMC determines interest rate policy based on a wide range of economic indicators including inflation, employment levels, and durable goods orders data, which can provide insight into the economic health of a variety of industries such as technology, transportation, and manufacturing.

When these market indicators suggest that the economy is languishing, the FOMC may reduce the federal funds rate to make borrowing less expensive in the hopes of boosting economic activity. More money in consumers’ pockets typically means more spending and more money streaming into the economy.

When prices are rising too quickly, the FOMC may increase its interest rate, making it more expensive to borrow. That can slow spending and, in theory, help keep inflation in check.

Q: How Does the Fed Influence My Savings APY?

A: As mentioned above, the federal funds rate directly influences the interest rates banks use to borrow from or lend money to one another. But secondary effects eventually impact the wider economy, including the interest rates banks and financial institutions use when lending money through credit cards, personal loans, and mortgages. It can also affect the annual percentage yield, or APY, for savings accounts.

A federal rate decrease should eventually translate into lower interest rates when you borrow money to buy a house or car. It may also lead to a lower APY on your savings account.

When the federal rate increases, on the other hand, it becomes more expensive to borrow money, and savings account APYs typically increase.

Because savings account APYs are variable, they tend to rise or fall in the wake of federal rate changes. There are some types of savings accounts with rates that are fixed for a period of time — such as fixed-rate certificates of deposits (CDs). However, federal funds rate changes influence the rates financial institutions offer their customers for new CDs.

Q: Do Other Factors Influence My Savings APY?

A: Federal funds rate changes have a substantial influence on saving account APYs — but they are not the only factor.

Some banks offer high-yield savings accounts with APYs that are considerably higher than the national average rate. Online-only banks and credit unions generally have less overhead than traditional brick-and-mortar banks, which may allow them to offer higher APYs.

Competition among banks for consumer deposits may also drive changes to the APYs they offer. Larger banks tend to be less dependent on deposits than those with a smaller regional presence, for example, so those smaller banks may offer higher rates to attract depositors.

Even among these different scenarios, however, the Fed’s interest rate adjustments can still influence whether these banks’ APY rates rise or fall over time.

Recommended: What Is a Good Interest Rate for a Savings Account?

Q: How Has the Fed Adjusted Rates Recently?

A: After the economic crisis of 2008, the Fed upheld a near-zero rate policy for seven years as the economy normalized. Rates began to tick up gradually in 2015 until the COVID-19 pandemic upended the economy in 2020. The FOMC followed with two steep rate cuts to encourage economic activity, at the time, bringing interest rates down to historic lows.

This maneuver worked, but also contributed to the highest inflation rate the U.S. had seen in decades. In response, the Fed initiated a series of fund rate increases, culminating in a rate of 5.25% to 5.50% in July 2023 — the highest rate in 23 years — which the Fed held in place in a bid to inch inflation toward its 2% target.

September, 2024, however, marked a major pivot in the Fed’s policy as they announced their first rate cut in four years: an aggressive 50 basis points, bringing the federal funds rate down to 4.75% to 5%, with additional rate cuts expected to be announced in upcoming FOMC meetings.

Federal Funds Target Rate (2015-2024)

Source: Federal Reserve Bank of St. Louis

Q: When Will the Next Rate Change Come?

A: The FOMC typically convenes eight times per year. Though it does not necessarily adjust rates at every meeting, the outcome of these meetings is always watched closely, due to the broad impact rate changes have on the national and even global economy. Given that the Federal Reserve’s September 2024 rate drop is expected to be the first in a series of cuts, investors and consumers will almost certainly be closely monitoring the FOMC’s next moves.

In addition, banks and financial institutions sometimes adjust their own interest rates ahead of FOMC meetings, especially when economic conditions or signals from the Fed suggest a rate change may be forthcoming. The Fed publishes the schedule of FOMC meetings on its website.

The Takeaway

While the FOMC sets the federal funds rate to directly influence the rates banks use to lend money to each other, the rate has a broader effect on the U.S. economy, impacting many financial services and products including personal loans, mortgages, and savings accounts.

Photo credit: iStock/Sadeugra

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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A credit card convenience fee is an additional charge that a merchant collects on a purchase to compensate them for accepting your card vs. their usual form of payment. Perhaps they usually accept cash, check, or an electronic transfer, and allowing you to use plastic requires more time and effort for them or it triggers fees for them.

Given that more than 80% of Americans use credit cards, it’s likely that most people get hit with a convenience fee at some point. Here’s what you need to know about how they work and how to avoid them.

What Is A Convenience Fee?

A convenience fee is a flat fee, such as $1, or a percentage of your purchase (up to 4%) that’s tacked onto the cost of your transaction that you, the cardholder, are expected to pay. Here’s some more intel about these fees:

•  A credit card convenience fee is typically charged by merchants when a customer uses a credit card in a payment channel that isn’t the usual one for the business. For instance, if a trade school usually accepts payments in-person and you choose to pay online, you might be assessed the additional fee for the convenience of not turning up at their place of business.

•  The fee can reflect a merchant trying to pass along some fees they pay when you choose to use a credit card vs. other methods. When merchants allow a customer to use a credit card as a payment method, they (the retailer) are charged a credit-card processing fee for the transaction. By charging a convenience fee, the merchant may offload that processing fee.

In some cases, a retailer will factor such credit card fees into their business model and won’t pass along the additional charge. That is why you may notice that convenience fees seem somewhat random. However, convenience fees must be disclosed when they are charged; they can’t be added without a consumer being informed of them.

Example of a Convenience Fee

Here are examples of convenience fees in action:

•  When you fill up your tank at a gas station, you may notice that the price for gas is, say, 2.5% or 3% higher per gallon if you pay with a credit card vs. cash. That could be how the gas station owner recoups the credit card processing fees they must pay on such transactions.

•  You might pay an extra charge of a couple of dollars when you buy movie tickets online or via an app instead of at the box office. You enjoy the convenience of buying something with your card (and perhaps snagging seats to a show that could sell out), and the merchant is able to offset their costs somewhat.

Recommended: How Does a Credit Card Work?

Why Do Convenience Fees Exist?

The main reason you’re getting stuck with these convenience fees is because the merchants have to pay processing fees to payment networks, as noted above.

•  The payment networks or payment processors work with credit card issuers (like your bank) and the card network (Visa, Mastercard, Discover, American Express) to make sure the transaction is secure and processed smoothly.

•  The bank that issues the cards often charges the merchant a credit card processing fee for allowing them to accept this card. This is typically between 1.5% and 4% per transaction. The merchant might pass those fees on to you, the consumer, as a convenience fee.

This is also another reason some small businesses may not accept credit cards at all: They don’t want to have to pay the fees associated with taking them or pass them on to you

Credit Card Company Rules on Convenience Fees

Here’s the breakdown for how some of the major credit-card brands handle fees.

Convenience Fees vs Surcharge Fees: What’s the Difference?

While they both add to a purchase’s cost, here is the difference between what you may hear referred to as convenience fees and surcharge fees.

•  A surcharge fee covers the cost of you having the privilege of using a credit card. It’s added before taxes. Sometimes called a “checkout fee,” it is usually a percentage of the sale. Credit card surcharges are prohibited by law in a number of states. These charges are currently illegal in Connecticut, Maine, Massachusetts, New York, and Puerto Rico, but these laws are subject to change.

•  A convenience fee, as noted above, typically covers the cost of doing a transaction with a credit card instead of another payment method. Sometimes this is charged as a percentage of the transaction. Other times, it is charged as a flat fee, regardless of the cost of the products or services purchased..

How Can Convenience Fees Be Avoided?

When you’re trying to avoid credit card convenience fees, you can use these tactics:

•   You can choose to pay with a method other than plastic, such as cash, check, or money orders at some merchants. Or you may be able to use an electronic payment, such as an e-check or ACH payment.

   For example, if you’re paying for college tuition, you might be able to set up an online payment using an electronic check, money order, or personal check. At some schools, this could save you nearly 3% per payment transaction. (That being said, if you have a high-rewards credit card, conducting an expensive transaction might be beneficial if you can get cash back.

•   You can scan for notices about convenience fees before conducting a transaction. You can look for posted signs in brick-and-mortar locations and read the payment terms on websites and in apps.

•   You can ask before purchasing a product or service if paying by cash will save you money (this can sometimes be the case with service providers) or if using a credit card will trigger a fee.

Credit card fees are fairly common today, so you want to be alert to how they can crop up and avoid them when you can.

Recommended: How to Use a Credit Card

The Takeaway

Knowing that credit card convenience fees (and surcharge fees) exist, whether they are legal in your state, and how to avoid them can help save you money in the long run.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Why am I being charged a convenience fee?

A credit card convenience fee typically reflects that the merchant is willing to accept plastic vs. other payment methods they usually take. These fees may be a way that merchants recoup the processing fees that they then must pay when they allow customers to use a credit card.

Is it legal to charge a convenience fee for credit cards?

Credit card convenience fees are currently legal in all U.S. states but must be disclosed; they can’t be added on without a customer being informed.

How to avoid credit card convenience fees?

You can usually avoid credit card convenience fees by using an alternate payment form, such as cash, check, or electronic payment.

Photo credit: iStock/blackCAT

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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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