Car Depreciation | How to Calculate Depreciation on a Car

February 15, 2020/Dealership Locator

We all wish for not growing up but the sad part is it is not in your control. Our age increases every year and yet we celebrate. In the same way, our car depreciates the moment we acquire them no matter how much money we invest. The moment we take off the car from the lot it loses the value. 

 

As per the researchers, the current depreciation rates have been dropped by more than 20 percent after acquiring ownership. Furthermore, the car depreciates approximately 10% in the coming years. This implies the car can be worth 35-40% after five years. 

 

The human from his 24 hrs. at least spend 1-2 hr. in there for daily errands and work behind the wheel. This shows the importance of vehicle and how it loses the value with time that’s why we call this car depreciation.

 

Let’s look at the aspects which can affect your vehicle’s value.

Understand what car depreciation means?

Every car buyer or seller should remain familiar with the word “car depreciation” and how it affects in the long run. The car is a depreciating asset that loses its value over time in which car age and mileage play a crucial role. The car loses its value with wear and tear and parts replacement is available.

 

However, the change in technology is another factor that affects the depreciation as no one buys a vehicle without modern safety technologies.

What factors affect the car depreciation?

Investing your money in a new car means paying more than the worth of the car. It also comes with taxes, fees, etc. which goes the same when you acquire a pre-owned vehicle from a dealership. 

 

  1. The more you drive, the less your car will be worth which means mileage can lower down the vehicle’s value. “Lower mileage, a higher value”.
  2. Ever seen a buyer investing in a vehicle with a lesser fuel economy? Never. The purchase depends on the MPG.
  3. Condition of the vehicle plays a major role in both exterior and interior even a single dent can lessen the value of your vehicle.

How can I reduce the car depreciation?

To reduce the car depreciation and increase car value requires the following basic guidelines. 

 

  1. Initially, depreciation is the price you pay for the vehicle which can be reduced by using the vehicle less. 
  2. Routine maintenance servicing regularly, oil filtration, replacement of worn and torn part with new ones.  
  3. Change in technology also affects car depreciation which means buying a new car with high technology holds more value than your old one.

How promptly cars drop their value?

There are a number of factors that affect car depreciation which entirely depends upon the car you buy. New cars depreciate faster than used cars. 

 

  1. Firstly, the depreciation occurs after driving the car off from the lot. The value decreases from 9-11% which means after buying the car you lost approx. $30,000 on the new vehicles.
  2. Secondly, the new car gets biggest hit within the first 12 months and the value of the car decreases by 20%.
  3. Lastly, the new car depreciates by 20-25% every year which implies after 5 years the car will lose around 60% of its value.

How does GAP insurance protect the depreciation?

GAP insurance covers the gap between the loan amount and the vehicle’s actual value if the car is stolen, damaged and totaled. This helps in keeping you from making payments on the car that no longer in existence. There are chances when you find GAP insurance associated with your lease contracts.

Does depreciation increase the value of used cars?

Considering buying the new vehicle but they face a huge amount of depreciation which implies investing in used ones will be a great option which entirely depends on the choice of users how long the person can keep the car.

 

If you replace the car with a newer model in a few years which shows the depreciation has become the most important factor when you buy a new instead of used. However, if you buy and hold the vehicle for a longer period then depreciation won’t affect your decision. We recommend you to invest your money wisely and buy a used car.