Car Depreciation Calculator

1. Using the Car Depreciation calculator
2. Basics of car value depreciation
3. Car depreciation example
4. Financial caution

    Using the Car Depreciation calculator

To use the calculator, simply enter the purchase price of the car and the age at which the car was when it was purchased by you (0 for brand new, 1 for 1-year old, etc.). If you leave the "Depreciation period" field empty the car depreciation calculator will output the depreciation over the next 8 years. If you know when you intend to sell your car, e.g. 5 years after the date of purchase, enter "5" in this field and you will see the value of the vehicle after 5 years, the percentage depreciation, the absolute loss of dollar value, as well as the average loss per year.

Optionally, you can select the rate at which you expect the car to depreciate: low, medium or high. The chart below presents a comparison of the three curves:

As you can see most cars lose most value the first-year after they are purchased, then lose less value until they are about 10-year old, after which the rate of value loss decelerates even further. The numbers used in the calculator are based on industry-wide averages and should be used for guidance only. The actual depreciation of your car will vary depending on level of maintenance, miles driven, market conditions, price of relevant fuel, etc. The same vehicle might depreciate at different rates in different markets, e.g. a car might lose value faster in the U.S. where average mileage is higher versus the U.K. where it is generally lower.

    Basics of car value depreciation

Depreciation is the negative change in the value of a car when you consider it at some point in the future, e.g. when you intend or expect to replace the automobile with a newer one. A car starts depreciating in value the moment it is acquired by a buyer, usually by as much as 10%. It's worth then decreases drastically during its first year of exploitation, usually dropping between 15-30%. From then onward it decreases at a lesser rate each year as new better cars enter the market while the vehicle increases its mileage and experiences wear and tear. Depreciation slows down around 9-10 years in.

While depreciation depends on factors the owner can influence, such as good maintenance, low usage on good roads, etc. it also loses value due to external conditions such as market changes, consumer preference changes, and increasing regulatory requirements, among others. Therefore, it is wise to consider whether to purchase a brand new car which is likely to depreciate quickly in the first couple of years, or buy a second-hand car which will depreciate at a slower pace. Depreciation only matters if you plan on selling the car and getting a replacement. If you plan on sticking to your vehicle for many years then it is less of an issue.

    Car depreciation example

Assume one is in the market for buying a car and a decision has to be made whether to purchase a brand new one, or a second hand 4-year old car, assuming it is expected that the car will be replaced eventually after 5-6 years in both cases. Obviously, all kinds of possible costs like maintenance, insurance, etc. need to be taken into account, as well as benefits like improved safety, fuel efficiency, and so on for the newer model. However, after accounting for these the issue of car depreciation remains and it is a fact that the manufacturing year of an automobile is usually the primary factor dictating its sale price.

If a new car of our chosen manufacturer and model costs $56,000 and a 4-year old used one costs on average $38,000, the graph above can be used to determine that the rate of depreciation for this model is on the low end (32% percentage decrease in 4 years). Armed with that knowledge, one way to compare the choice between new and used based on the combined yearly cost would be to create a table like this:

Depreciation, maintenance, and total cost per year are all averages - in reality maintenance increases while the depreciation decreases each following year. Depreciation per year was calculated using this vehicle depreciation calculator and would be just an approximate result for any real-world case.

Assuming the maintenance numbers include all expenses on keeping the car in good shape and paying all necessary insurance then the total yearly cost numbers show that the luxury of having a brand new car will end up costing $1,500 more per year versus the second hand option, on average. $1,000 of those are due to the higher rate of sale value depreciation. On top of that you will need to front a larger initial payment. Which option one should go for is obviously predicated on their means and circumstances, but knowing the cost of that decision should help make it more informed.

    Financial caution

This is a simple online tool which is a good starting point in estimating the interest rate and returns from a bank deposit or a similar investment, but is by no means the end of such a process. You should always consult a qualified professional when making important financial decisions and long-term agreements, such as long-term bank deposits. Use the information provided by the calculator critically and at your own risk.