Buying a car is a huge milestone for many families and generally a happy experience for everyone. Whether it's a new luxury vehicle or a second-hand car you must understand that every car’s value depreciates over time.

Car depreciation affects your financial decisions and the overall value of your vehicle while you’re trying to sell your car. In this blog, we'll explore the concept of car depreciation, its factors, how it impacts buyers and sellers, and how to calculate it.

Car depreciation refers to the decrease in a vehicle's value over time due to wear and tear. From the moment you drive a new car off the dealership lot, it starts to lose value.

The depreciation rate for vehicles, commonly referred to as the vehicle depreciation rate or car depreciation rate, is an important factor for any car owner or potential buyer to understand. Understanding the vehicle depreciation rate helps you make informed decisions about buying, maintaining, and selling your car. This rate changes depending on several factors, including the car's make, model, and usage.

1. Odometer Reading

   The number of kilometres a car has travelled can affect its depreciation to a large extent. A higher amount of kilometres usually leads to a higher depreciation rate because it shows that there has been more wear and tear and extensive usage.

2. Service History

   A properly documented service history from your authorized service centres can reduce the depreciation value of a car per year. Regular monthly maintenance and timely repairs can make sure that the car remains in good condition, which helps retain its close to its original value.

3. Reliability

   Cars known for their strong reliability usually tend to depreciate more slowly. Vehicles from companies with a reputation for durability and fewer breakdowns maintain their value better over time which leads to less depreciation on cars in India.

4. Length of Warranty

   Longer warranty on cars is a factor which is attractive to a lot of buyers, as they provide peace of mind regarding potential repairs and wear and tear. Extended long warranties can usually slow down the depreciation rate.

5. Fuel Economy

   Vehicles with better fuel efficiency are more desirable, leading to a slower depreciation rate. Fuel-efficient cars cost less to run, which is a key selling point for used car buyers.

6. Number of Owners

   Since the concept of depreciation also revolves around the amount of usage and “newness” of the car, a car with fewer previous owners is more likely to have a higher resale value. Having multiple previous ownership changes can show that there are potential problems or inconsistent maintenance.

7. Makes and Models

   Certain makes and models depreciate faster than others. Luxury cars and high-end models often have higher depreciation rates due to expensive maintenance and repairs.

Buyers should look for cars with a lower depreciation rate rather than simply going for the lowest price. While a car with minimal depreciation might cost more in the beginning, it offers better value, more reliability and good quality in the long run.

Sellers benefit from maintaining their cars properly and this can reduce depreciation. A car with a lower depreciation rate will provide a higher resale price which makes it crucial to invest in good maintenance and avoid unnecessary modifications.

In India, the car depreciation rate is standardized by the Insurance Regulatory and Development Authority of India (IRDAI). The following chart shows the typical depreciation rates based on the vehicle's age: This chart can help you understand how to calculate the depreciation value of a car

Age of car: 0-6 months: 5%

Age of car: 6 months – 1 year: 15%

Age of car: 1 year – 2 years: 20%

Age of car: 2-3 years: 30%

Age of car: 3-4 years: 40%

Age of car: 4-5 years: 50%

Above 5 years: Can be mutually decided between the insurer and vehicle owner

You can calculate the depreciation value of a car per year using methods like the straight-line depreciation method or the declining balance method.

These methods consider the car's initial starting cost, age, and expected lifespan to determine its current value. Online car depreciation calculators can also help you quickly find the depreciation rate of your vehicle.

Understanding car depreciation helps you make better financial decisions. Whether buying a new car or a used one, knowing its depreciation rate allows you to plan for future resale.

This knowledge is important for increasing your investment and making sure that you get the best possible value when you decide to sell your car.

Car depreciation is unfortunately an unavoidable aspect of vehicle ownership, but understanding it can help you manage its impact on your finances. Proper maintenance, choosing reliable models, and considering fuel efficiency can all help reduce depreciation. However, even with these measures, the financial impact of depreciation can still be strong. Depreciation eats up your car value, leading to a loss; then there are many other potential financial losses like accidental damages. This is where comprehensive car insurance becomes important for potential peace of mind and financial stability.

For proper coverage, potential financial security and added protection, consider SBI General Insurance's Private Car Insurance Policy - Package. This policy not only covers accidental damage and third-party liability but also offers benefits like No-Claim Bonus so that you get maximum value even as your car depreciates. With extensive coverage, cashless garages, and a high claim settlement ratio, it makes sure your car is well-protected. By investing in comprehensive car insurance, you can safeguard your vehicle against unforeseen expenses, maintaining its value and your financial peace.