Your New Car Lost 15% the Second You Drove It Home — Here's What That Means for Your Loan

What Is Car Depreciation — and Why Should You Care?

Depreciation is simply the drop in your car's value over time. Every car does it. Some faster than others. But here's what the finance industry would rather you didn't think about: your loan balance doesn't depreciate at the same rate your car does. That gap between what your car is worth and what you still owe? That's called negative equity — and it's more common than you'd think.

In Australia, a new car can lose 10% to 15% of its value the moment it leaves the showroom floor and up to another 10–15% by the end of its first year on the road. That's not a typo. A $50,000 car could realistically be worth $42,000 before you've even made your second repayment. Meanwhile, your standard 5-year loan has barely chipped away at the principal.

The Numbers Are Real — and They're Ugly

Let's put some actual Australian figures on this. The average new car loan in Australia right now is $46,055, and the average car loan interest rate across all borrower types sits at 8.92% per annum. On a standard 5-year term, that means monthly repayments of around $955 — and total interest paid of roughly $11,245 over the life of the loan.

Now factor in depreciation. That $46,000 car loses value fastest in year one, then slows down. By year three, you might have $28,000 left owing — but the car could be worth $22,000. You're underwater. If life throws a curveball — redundancy, relationship breakdown, health issue — and you need to sell, you'd owe your lender more than the car is worth. You'd have to find the difference out of your own pocket.

What's Actually Driving Rates Right Now

It's not great news on the interest rate front either. Average car loan rates have been creeping up through 2026. As of May 2026, the average rate for good-credit borrowers has risen to around 7.58% p.a. — up from 7.12% back in November 2025. The RBA hiked the cash rate in February 2026, and again in May, with global economic pressures cited as part of the reason. Six lenders increased their rates in April alone. The broader RBA-sourced average across all borrower types now sits closer to 8.92% p.a. — well above what most dealers quote you in the showroom.

What does that mean in practice? Even a modest 0.5% rate increase on a $40,000 loan over 5 years adds roughly $500 to your total repayment cost. It doesn't sound like much — until you realise that's on top of already paying thousands in interest while your car bleeds value every single month.

The Dealer Finance Trap: Cheap Repayments, Expensive Reality

Here's where it gets interesting. Dealers love to talk about low weekly repayments. Some manufacturers are dangling headline-grabbing finance offers — we've seen EOFY 2026 deals as low as 0.88% comparison rate on certain EV models and 1.88% on specific SUVs. Sounds amazing, right? But these rates are almost always tied to a balloon payment or residual value at the end of the loan term — meaning you'll have a lump sum still owing when the deal is done.

That residual is calculated against the car's projected future value. If the actual used car market has moved — and it does move, as we've seen dramatically since 2020 — you could be left paying a balloon that's higher than what the car is genuinely worth at that point. Congratulations, you're back to negative equity. Just three years later instead of one.

How the ATO Sees Your Car's Value

If you use your car for work, there's a silver lining: the ATO lets you claim depreciation as a tax deduction. The standard ATO depreciation rate for most passenger vehicles is 25% per annum on a diminishing value basis — or 12.5% per year on a straight-line (prime cost) basis over 8 years. Both methods assume the car has an effective life of 8 years.

Practically speaking, on a $46,000 car using the diminishing value method: Year 1 deduction = $11,500. Year 2 = $8,625. Year 3 = $6,469. The deductions get smaller each year, but they're real money back in your pocket if you're a sole trader, run a business, or use the vehicle for work. There's one important catch though: for 2025–26, the ATO has a car depreciation limit of $69,674. If your car costs more than that, you can only claim depreciation on up to $69,674 — not the full purchase price. And GST credits on cars above that threshold are also capped.

Keep in mind that car depreciation claims only apply to the business-use portion of your vehicle. If you drive 60% for work and 40% personally, you can only claim 60% of the depreciation. Always keep a logbook and speak to a financial adviser or registered tax agent before lodging claims.

The Depreciation Sweet Spot: When to Buy, When to Sell

Smart car buyers use depreciation to their advantage. Here's the simple version: someone else takes the hit on year one depreciation when you buy a used car. A car that's 2–3 years old has already absorbed the steepest value drop, but still has plenty of useful life ahead. The average used car loan in Australia is $28,658 — significantly less than new — and you're buying an asset that's already stabilised on the depreciation curve.

Not all brands depreciate equally either. Vehicles like Toyota, Mazda, Hyundai and Kia are well known in Australia for holding their value better than lesser-known or newer-to-market brands. High-demand models — large SUVs, dual-cab utes, popular family cars — tend to retain value longer because secondary market demand stays strong. That's worth factoring in before you sign anything.

Where Milam Fits In

Standard car loans — and most GFV products from dealerships — are structured so that you carry all the depreciation risk. The lender gets their interest. The dealer gets their margin. You get the car, the repayments, and a depreciating asset that you hand back with nothing to show for it.

Milam is built around a different idea. Lower weekly repayments than a standard GFV loan, plus an equity payout when you return the car. That means the value your car retains over the loan term actually comes back to you — not into someone else's pocket. In a market where the average Australian is borrowing $46,000 on a depreciating asset and paying 8.92% for the privilege, keeping a share of that retained value isn't just nice — it's the financially smarter way to do car finance.

What You Should Do Before You Sign Anything

• Ask for the comparison rate, not just the interest rate. The comparison rate includes fees and is the real cost of the loan.
• Run the total cost, not just the weekly payment. Multiply out the full loan term and add the balloon if there is one.
• Check how the car holds its value. Research resale prices for the exact make, model, and age you're buying before you commit.
• Understand your equity position at every point. Know what you'll owe versus what the car will be worth at year 1, year 3, and end of term.
• Don't rely on the dealer's finance manager. Nearly half of Australians who regret their car loan say they relied on the dealership salesperson to guide their finance decision. Shop around.
• Speak to a financial adviser before committing to any loan structure, especially if you plan to claim depreciation for tax purposes or you're financing through your business.