Car ownership may seem like a simple transaction - you pay the money, and in return, you get a shiny new set of wheels. But there's a lot more to it than meets the eye. The car depreciation rate is an important factor. Wouldn't it be great if we could predict how much value our beloved vehicles will lose over time? Read this guide for more information on car depreciation rates:
What is car depreciation?
In simplest terms, car depreciation value is the difference between what you paid for your car and what you receive when selling it. It's hands down one of the biggest expenses you'll face as a vehicle owner, alongside fuel and maintenance costs.
Your brand - new car starts losing value as soon as it leaves the showroom. In fact, in just three years of ownership, a new car can depreciate by up to 60 per cent of its ex - showroom price! This means that when it's time to sell your car, what you're left with is its depreciated value.
So let's dive deeper into understanding the factors influencing car depreciation value.
How to calculate depreciation of cars: Factors affecting your car's depreciation rate
If you are wondering how to calculate depreciation of cars, several factors affect how quickly your vehicle depreciates:
1. Odometer Reading: The more miles or kilometres your car has clocked, the lesser its value will be.
2. Service History: A well - maintained vehicle serviced at authorised workshops holds its value better.
3. Reliability: Reliable cars depreciate slower than those with frequent breakdowns or issues.
4. Length of Warranty: Extended warranties often mean less depreciation, as they offer a safety net to the new owner.
5. Fuel Economy: Fuel-efficient cars hold their value longer as used car buyers often prioritize fuel economy.
6. Number of Owners: The more hands a car has passed through, the lower its value will be upon resale.
7. Makes and Models: Some cars depreciate faster due to discontinuation or the automaker ceasing operations in the market.
How does car depreciation affect buyers and sellers?
For Buyers
While everyone loves a bargain, buying the cheapest available used car might not always be the wisest decision. A car that has depreciated less usually indicates higher reliability, better maintenance, relevancy, and lower ownership costs. So it might be worth paying a bit more upfront for such a vehicle.
For Sellers
If you're selling your car, you'd naturally want it to have retained as much value as possible. Thus, opting for a vehicle known for its durability and lower vehicle depreciation rate could give you a better return when it's time to sell.
The car depreciation curve in India
Insurance companies use a predefined algorithm based on rates laid down by the Insurance Regulatory and Development Authority of India (IRDAI) to calculate your car depreciation value per year. Here's how it breaks down:
Age of car | Rate of depreciation |
0-6 months | 5% |
6 months – 1 year | 15% |
1 year – 2 years | 20% |
2-3 years | 30% |
3-4 years | 40% |
4-5 years | 50% |
Above 5 years (for obsolete models) it is mutually decided between the insurer and vehicle owner.
Mastering the calculation of car depreciation
There are various ways to calculate car depreciation. Here's a step - by - step guide to some of the most common methods:
1. Straight-Line Depreciation Method: Divide the cost of your vehicle by how many years it is likely to last.
2. Declining Balance Depreciation Method: Multiply the cost of your car by a percentage that decreases each passing year.
3. Sum-of-the-Years’ Digits Method: Add up all digits in the years your car could last, then divide this number by nine.
Minimising car depreciation: A few tips
Car depreciation per year is normal and every car depreciates, but there are ways to minimise this inevitable decline:
1. Regular Maintenance: Keeping your car in top condition and having a complete service record can help preserve its value.
2. Lower Mileage: Avoid using your vehicle excessively; remember, higher kilometres translate into greater depreciation.
3. Choose Wisely: Opt for models from reputable manufacturers known for durability and longevity to ensure lesser depreciation.
Conclusion
Understanding the vehicle depreciation rate is essential to being a smart car owner. It helps you make informed decisions when buying or selling vehicles and ensures you get the best value from your investment. If you're looking for an even more hassle - free experience, consider exploring Quiklyz's car subscription services. With a comprehensive selection of vehicles and flexible plans, Quiklyz offers a modern solution to traditional car ownership.
