# Car Depreciation Calculator

Know all about car depreciation, and how to calculate the depreciation rate of a car.
Car depreciation calculator

Calculate the valuation of car

3 mins
20-July-2023

Often car owners overlook the car’s depreciation, but it is an important factor to consider when purchasing a vehicle. It also factors in when calculating car insurance costs.

## What does car depreciation mean?

Car depreciation refers to the decrease in the value of a car as it ages or is used. It is a natural process that affects all cars, regardless of whether they are brand new or second-hand. Depreciation is one of the most significant expenses for car owners, and it is important to understand its rate and the factors that influence it. Car depreciation value also affects the car insurance claim settlement. You can calculate the depreciated value of your car over time using the car depreciation calculator.

## How to calculate car depreciation?

There are various methods of calculating car depreciation that can help in understanding its effects on a vehicle's value. Two common ways of calculating car depreciation are the prime cost method and the diminishing value method.

### Prime cost method

The prime cost method calculates depreciation as a fixed percentage of the car's purchase price divided by its useful life. For example, if your car costs Rs. 10 lakhs and has a useful life of five years, the annual depreciation using the prime cost method will be 20% of Rs. 10 lakhs, which equals Rs. 2 lakhs per year.

### Diminishing value method

The diminishing value method is based on the assumption that the car's value decreases more rapidly in the earlier years of usage because of greater wear and tear. This method calculates depreciation using a higher percentage of the current value of the car.

For example, if your car's initial worth is Rs. 10 lakh, and the depreciation rate is 25% per year, the car would depreciate by Rs. 2.5 lakh in the first year, Rs. 1.87 lakh in the second year, Rs. 1.40 lakh in the third year, and so on.

### Using a car depreciation calculator

While the prime cost and diminishing value methods can provide accurate calculations, it may be challenging to do them manually. Fortunately, there are car depreciation calculators available online that can help in calculating depreciation based on the vehicle's make, model, year, usage, and condition. These calculators provide an estimate of the vehicle's current value using various depreciation calculations.

## An overview of car depreciation rate

Here’s a quick overview of the percentage-wise depreciation of a car’s value over time.

 Car’s age Percentage of depreciation Less than six months 5% Six months – One year 15% One – two years 20% Two – three years 30% Three – four years 40% Four – five years 50%

## Factors affecting the depreciation rate of car

Several factors can impact the rate of depreciation of a car such as:

Brand and model
The car’s brand and model influence the rate of depreciation. Luxury cars and high-performance vehicles tend to depreciate faster than regular cars.

Age
The car’s age plays a significant role in the vehicle depreciation rate. A new car will experience a more significant depreciation rate in its first year of usage.

Mileage
The higher the mileage, the faster the car will depreciate in value.

Condition of the car
Cars in excellent condition will hold their value longer than those in poor condition.

Maintenance history
Cars with a documented maintenance history indicating that the car has been well maintained will retain their value for longer.

## How does car depreciation affect car insurance?

Here’s how car depreciation impacts certain elements of a car insurance policy.

Motor insurance premiums depend on various factors, including the value of the vehicle. As the value of a car decreases due to depreciation, the car insurance premium also decreases. As the cost to repair or replace a depreciated car is lesser, it reduces the risk for the insurance company. So, if your car has depreciated significantly, you can expect to pay less for car insurance premiums.

Insurance claims

In case of a car accident, insurers will consider the current value of your car to determine how much to pay out in a claim. If your car has depreciated significantly, you will get the claim amount deducting the depreciation value.

Total loss

If the car has undergone total loss, then its insurance compensation may vary based on the car’s depreciation rate. A faster depreciation on car will result in a lower value for insurance compensation. Therefore, a car's depreciation rate affects total loss compensation significantly.

Age of the car

The age of your car also plays a crucial role when it comes to car insurance. The older the car, the fewer its safety features, and the car's overall condition. Because of this, older cars typically have lower insurance premiums than newer cars with a higher value. For example, a new car will have a higher car insurance premium than an old car that has already gone through its initial depreciation.

Car depreciation is a significant factor that affects car insurance in several ways. It is important to understand its rate and the factors that influence it.

Therefore, you can look for comprehensive car insurance plans with zero depreciation cover. This add-on cover enables you to get full value of car without any deduction of the depreciation value. You can choose from a wide range of car insurance policies that offer zero dep add-on cover at affordable premiums at the Bajaj Finance Insurance Mall.

## Ways to minimise car depreciation

Numerous methods can help minimise depreciation and enhance the Insured Declared Value (IDV) and resale worth of your car. Below are some tips to mitigate the depreciation of your vehicle:

Regular maintenance: Maintaining your car in good condition increases the likelihood of receiving a higher resale value. Keep a record of all servicing activities. Additionally, refrain from making modifications to the vehicle, as these alterations can make the car harder to sell.

Follow manufacturer's maintenance schedule: Adhering to the recommended maintenance schedule outlined by the manufacturer helps ensure that your car remains in optimal condition, minimizing depreciation caused by neglect or mechanical issues.

Drive responsibly: Avoid aggressive driving behaviours such as sudden accelerations, harsh braking, and rapid cornering, as they can accelerate wear and tear on your car, leading to faster depreciation.

Opt for high resale models: Certain car models retain their value better than others. Conduct thorough research on the resale values of various vehicles before purchasing a new car. This enables you to steer clear of cars with higher depreciation rates.

How do I calculate my car depreciation with the help of a car depreciation calculator?

A car depreciation calculator can help you calculate the depreciation value of your car by considering the following factors:

• Car’s make and model
• Car’s age
• Car mileage
• Car’s condition

All you need is to fill in the required details, and the calculator will provide you with an estimated amount.

What is the depreciation percentage of a car per year?

The depreciation percentage of a car varies depending on several factors such as the make and model, age of the car, and condition. Generally, cars depreciate between 15%-20% in the first year and about 10% each year after that.

What is depreciation and how does it apply for a car?

Depreciation is a natural process in the life of a car and is not necessarily good or bad. It is simply a decrease in the car's value over time due to wear and tear, age, and other factors. While depreciation may not be good for the car's value, it simply reflects the reality of a car's usage and is a normal part of car ownership.

Can we claim depreciation on a second-hand car?

You can claim depreciation only for new cars. You cannot claim depreciation on a second-hand car even if bought recently. However, the depreciation rate and condition of the vehicle can affect the car’s resale value.

How do you calculate the depreciation value of a car?

To calculate a car's depreciation value, use a car depreciation calculator. Input details like make, model, year, purchase price, and mileage. The calculator estimates the current value based on age, mileage, and market trends. Remember, other factors like condition and maintenance history also influence depreciation.