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2014 Toyota FJ Cruiser

Toyota

Depreciation is a fact of life when you buy a new car, but it's becoming even more important .

J.D. Power reports more than half of the loans taken out to finance a new-vehicle purchase in Canada have terms of 84 months – some as long as 96. That's eight years.

Unless you plan to keep your vehicle longer than that, when you go to replace it with a newer model, there's a good chance you will still be paying off the old one.

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That's fine if its trade-in value is greater than the remaining balance on the loan. But in almost a third of cases, it isn't, according to Power's most recent PIN Automotive Metrics report.

In January, 46 per cent of all new vehicle purchases involved a trade-in and of those, 29 per cent had negative equity.

As vehicle-financing terms stretched from three to five to seven years and longer, the chance of being underwater on a car loan has increased.

"It doesn't mean the deal won't go through," says Brian Murphy, vice-president of research and editorial at Canadian Black Book (CBB), which tracks vehicle values. "The concern is you then just roll that debt into the next car. Your monthly payment's much higher."

Murphy, a former analyst at J.D. Power, said the outstanding amounts average almost $7,000 on a typical $35,000 vehicle.

"That's more than $100 a month extra on your loan," he said. "I'm sure most people's families could do something else with it."

It makes CBB's annual look at which vehicles have the best retained values relevant reading.

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CBB ranks vehicles' retained value by category based on vehicles four-model-years-old. This year, for the first time, it also named overall brand winners, with Subaru taking the title for passenger cars, Toyota for truck/SUV and Porsche for luxury models.

The top model overall was the Toyota FJ Cruiser SUV, discontinued in 2014 – but with a developing cult following. It retained a record 83 per cent of its original retail price after four years. The iconic Jeep Wrangler compact SUV was not far behind at 82 per cent, tied with the Toyota Tacoma, which topped the small pickup group.

In photos: Canadian cars with the best retained value by segment

Toyota's Prius c hybrid was a surprise winner in the sub-compact category, beating three-time winner Honda Fit.

In other categories, Subaru XV Crosstrek topped the compact car category, Toyota Camry won mid-size car, Toyota Avalon, full-size car, Volvo XC70, entry-level luxury car, Porsche Pamamera, premium luxury car, Porsche Boxster, premium sports car and Dodge Challenger, sports car.

In truck categories, Toyota Tundra was the best full-size pickup, Honda Odyssey and Toyota Sienna tied for best minivan retained value, Mercedes-Benz Sprinter, full-size commercial van, Nissan NV200, mid-size commercial van, Toyota Sequoia full-size SUV, Audi Q5 compact luxury SUV, Porsche Cayenne mid-size SUV and Mercedes-Benz G-Class, full-size luxury SUV.

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Sub-compacts fared the worst as a segment, holding only 37 per cent of their value, compared with an overall category average of just more than 50 per cent. It reflects Canadians' flight from small cars to SUVs and crossovers.

"Smaller, low-cost compact cars don't do very well," said Murphy, adding some are models that previously captured awards for best retained value. "The other one is electric vehicles. We're not seeing them really retain their value very well."

Small pickups retained 73 per cent, full-size luxury SUVs 60 per cent and full-size pickups 59 per cent, driven in part by demand in the United States for good used trucks, said Murphy.

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