Important Things You Ought to Know about Car Depreciation

car on coins

For most people, a car is usually the second-biggest purchase after a house. But an automobile depreciates over time, unlike a home. This gave rise to the well-known and often-used adage that says the moment you drive off the dealership lot, the value of your new car starts to decrease.

However, everything is not lost. Car depreciation cannot be stopped, but there are steps you can take to maximize its resale value by slowing down the depreciation process. Everything you ought to understand about car depreciation, including the variables that influence it, is covered in this article.

What’s Car Depreciation?

car depreciation

The level at which the value of your car decreases over time is known as car depreciation. Vehicles can lose almost half of their worth after five years, while some models are more valuable than others.

Even though depreciation is inevitable, you can predict how much your car will be worth if you decide to sell it in a few years.

How to Calculate Car Depreciation

The prime cost approach and the diminishing value approach are the two most common approaches used by automotive depreciation calculators. Whichever approach is used, the car depreciation calculator computation includes the vehicle’s cost, which includes the purchase price as well as any additional funds needed for maintenance, registration, and transportation.

The following components are common in both techniques of calculating car depreciation:

  • Of days held
  • Cost/base value of the car
  • The effective life of the car

By using the prime cost method, the value decline of the vehicle is determined as a fixed percentage of its cost. Value decreases uniformly over time as a result. The formula for the prime cost approach is:

Asset’s cost x (days owned ÷ 365) x (100% ÷ effective life in years) = lost value

The base value of the vehicle is used to compute depreciation in the diminishing value approach. The car’s base value comprises the price paid at the time of purchase as well as any additional expenses incurred. The formula for the calculation is:

Base value x (days owned ÷ 365) x (150% ÷ effective life in years)

The above formula is for cars purchased before May 10, 2006. However, for those acquired after May 10, 2006, the formula is:

Base value x (days owned ÷ 365) x (200% ÷ effective life in years)

Factors that Affect Car Depreciation Rate

impact of car depreciation

Car’s Age & Mileage

If a vehicle is ten years old or older, the price will drop dramatically. That being said, a well-kept and in-demand vehicle can command a respectable premium even with its considerable age.

Before setting the price, the buyer of the car also checks the number of miles driven. It is a known truth that aging and wear and tear on the components will eventually reduce the vehicle’s efficiency.

Vehicle’s Condition

Every purchaser will examine the car with the assistance of a mechanic. A few things, like rattling noises and poor performance, will cause value depreciation. Pursuing careful servicing and maintenance practices is the best strategy to lower the price reduction.

Routine replenishments, timely replacement of faulty or underperforming parts, and preventative maintenance procedures can guarantee the finest possible condition for the car.

Discontinued Models

Models that are discontinued might have a depreciated pricing. The unavailability of spare parts and worries over post-purchase assistance deter buyers from choosing discontinued models.

Automakers provide spare support for even their discontinued models. The buyer may still only provide a lesser amount in this situation.

Vehicle Manufacturer’s Exit from The Industry

If the automaker quits the market, the car’s price will plummet dramatically. Their absence will cause other problems, such as not having spare parts or after-sale support.

Nobody wants to purchase an automobile from a manufacturer that has ceased operations and run into problems.

Cost-Effective Advanced Models

The automotive industry is undergoing a major shift as the majority of brands are now accessible globally. Both the cost and the features available of the cars indicate the fierce competition between automakers.

These days, it’s possible to buy a feature-rich car with cutting-edge technology integrated for extremely affordable pricing. The market for used cars is also directly impacted by this. This situation affects the cost of used autos.

End of Lifespan

The end of a car’s lifespan is another significant aspect that influences the depreciation rate. Each car has a designated lifespan.

After that, it must be disposed of or destroyed by the directives provided by the relevant authority. If the car is nearing the end of its useful life, you cannot anticipate a good price.

How to Limit Your Car’s Depreciation

volkswagen on money

You can’t stop the depreciation of a car, but the one thing that can be guaranteed is that the vehicle remains technically sound to fetch a reasonable price on the used automobile market.

Varying vehicle purchasers and used car sellers offer varying automobile prices based on the methodology they employ. Some ways to acquire the best value for your vehicle are as follows:

Proper Maintenance

The car’s technical health can be preserved with regular, appropriate maintenance and servicing. A car should be maintained at least once every six months rather than only when a flaw arises and needs corrective repairs or maintenance made.

Legit Spares

Installing duplicate replacement parts or components solely to save money is not a good idea. It would eventually harm the system and have an impact on its performance.

Servicing Center

Choose a reputable service center for your vehicle’s routine maintenance and repairs. You can’t rely on every service location in your neighborhood.

Because you cannot verify every component to validate the level of servicing, it is critical to select a reputable servicing center.

Car dealer

Numerous used vehicle dealerships buy used cars. Choose only a dealer who gives the best price for the vehicle. There are no hard and fast rules for determining the value of a used car. As a result, prices will vary from dealer to dealer.

Utilizing a car depreciation calculator to know an automobile’s depreciation value might help you pick a car with a high resale value. But if you need clarification on how things work, seek the advice of experts to get a vehicle that suits your budget, intended usage, and long-term objectives.

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