What Is Car Depreciation Rate?

Car depreciation is something you should be aware of if you want to purchase a car, new or old. This is significant as the moment you buy a car, its value begins to decline. All cars that are sold worldwide experience this same phenomenon.

All the variables that impact automotive depreciation should be known to you, though, if you want to purchase or own a car. Preparing for the purchase of a car or even the selling of your own will benefit from this.

What is Car Depreciation?

The gap between the price you spent to purchase a car and the amount you receive when it is sold is known as car depreciation. Alongside fuel and maintenance, this is one of the largest expenses incurred by a car owner. 

Furthermore, compared to used cars, brand-new cars lose value far faster. According to statistics, over the initial 3 years of ownership, a new car might lose as much as 60% of its original showroom value.

When purchasing a car, it’s critical to understand car depreciation. This is because you ultimately receive the depreciated worth of the car when you sell it off. Knowing the numerous variables that affect car depreciation becomes crucial as a result.

Also Read: 10 Reasons Why Your First Car Should Be a Second Hand

Factors Influencing a Car’s Depreciation

After reviewing the definition of cars depreciation, let’s look at the contributing elements to your car’s declining value: 

• Odometer reading

The mileage indicated by the odometer indicates how many kilometers or miles your vehicle has driven thus far. Your car’s value will decrease with increasing reading of speedometer. 

• Service history

Vehicles with legitimate records from licensed workshops are likely to have less depreciation. This is due to the fact that the service history serves as evidence of proper maintenance. 

• Reliability 

Needless to say, cars with a reputation for dependability depreciate less.

• Warranty duration

Although the majority of cars come with a 3-year basic warranty, several automakers provide extended warranties of as long as seven years. Vehicles with extended warranties are worth more because there is a greater element of confidence. 

• Fuel economy

Cars with greater fuel efficiency deteriorate more gradually. This is a result of used car purchasers favoring cars with better fuel economy. 

• Number of owners 

Cars with a history of several owners are worth less. Therefore, you will receive a reduced price if you decide on selling used cars that are now owned by their third or subsequent owner.

• Models and makes

Carmakers have terminated their operations in the market, and some models have been replaced with new ones, while others have been discontinued. Because of a greater amount of depreciation, the seller receives a lesser value in such circumstances. 

Also Read: Used Car Value Calculator – How to Get Best Price of Your Car?

What effects does car depreciation have on sellers and buyers?

You should know by now all the things that increase or decrease the value of your car. Therefore, to put it briefly, it directly affects both buyers and sellers who are participating in the used car transaction. 

• For Buyers

Purchasing the car at the best deal will be your goal as a consumer. Picking a model with the least amount of depreciation is usually a wise decision, though. Despite the fact that it would cost more, you could recoup the premium when you sell the car.

Additionally, the car you’re purchasing has a low depreciation rate, which indicates that it has been well-maintained, isn’t outdated, and even has a cheaper cost of ownership. 

Therefore, rather than just choosing the used car that is offered at the lowest price, it is advised that you plan the purchase according to your precise requirements. 

• For Sellers

It goes without saying that you want to profit from the cars with the lowest depreciation when you sell used cars. Therefore, when it comes time to sell, cars with higher residual values will provide more profits. When purchasing a new car, this is a crucial consideration for each and every person.

This may result in an initial cost that is slightly higher, but it would undoubtedly be recovered when the used car is sold. Additionally, you can gain from increased fuel efficiency, lower maintenance costs, and greater dependability. 

Also Read: Understanding the Difference Between SUV vs MUV vs XUV Cars

Car Depreciation Curve in India

The exact requirement for the vehicle and the model’s availability on the market are two important elements that affect car depreciation in India. Nonetheless, the depreciation calculation used by insurance firms follows a predetermined formula.

They employ it to calculate the vehicle’s IDV. Based on depreciation rates established by the Insurance Regulatory and Development Authority of India (IRDAI), the depreciated value is computed. Based on the vehicle’s age, these rates are determined.

How to Calculate Depreciation?

There are several ways to figure out an automobile’s rate of depreciation. Buying a car while you’re young and selling it later is the simplest age-based strategy. By dividing the vehicle’s cost by its anticipated lifespan, the straight line depreciation technique is used. 

Depending on how long the automobile lasts, the cost is multiplied by a percentage that drops annually when using the declining balance depreciation technique. The “sum-of-the-years” digits approach divides by 9 after adding up every single digit in all probable years for the car, depending upon certain factors and circumstances.

Why is depreciation an important factor to consider?

Planning for the future requires taking the depreciation factor into account when purchasing a car. Although they lose value right away, new cars continue to lose value until the time of sale. Prior to purchasing, it is crucial to understand the depreciation a model experiences.

The cheapest cars are frequently preferred by used car purchasers, however these cars are less dependable, outdated, require more maintenance, and are no longer covered by warranties. 

Purchasing a car that appreciates in value over time might reduce financial burdens and even raise the vehicle’s resale value. These often include luxury and collectible vehicles.

Ways to Minimize Car Depreciation?

The reduction in an automobile’s value throughout the course of ownership is known as depreciation. As soon as you hold it, it’s worth begins to decline. 

Maintain the car properly, save service documents from approved dealerships, steer clear of excessive usage, and purchase from reliable automakers like Maruti Suzuki, Toyota, and Hyundai to reduce depreciation.

Avoiding vehicles that might soon be outdated and putting more miles on the odometer might also be beneficial. When selling old cars, you may get a reduced depreciation value by using these tactics.

Conclusion

You must be aware by now that almost every car made up to this point has been impacted by the concept of depreciation. All car buyers, owners, and sellers have to accept this fact. Still, some cars lose value more quickly than others. In addition, there are other factors that accelerate the depreciation of the car. 

When you buy or sell used cars, you need to take these crucial considerations into account. To simplify matters for you, we’ve covered a few ways that decreased depreciation might help you. 

We are certain that this brief information will enable you to make an educated choice when purchasing a new or used car.

FAQs

Which Indian cars are depreciating the fastest? 

In India, costly cars often depreciate the fastest. Models from automakers such as Volvo and Audi have the highest depreciation value among them. Similarly, rapid depreciation results in a reduced resale value for some Skoda and Volkswagen vehicles with high maintenance expenses and unsatisfactory aftersales.

Which Indian cars are depreciating the slowest?

Toyota Fortuner and Toyota Innova Crysta are the vehicles in India that depreciate the slowest, according to statistics. The Maruti Swift and Dzire are two more models that hold their worth.