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 depreciation 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 following as output:

• value of the vehicle after 5 years;
• the absolute loss in dollar value;
• the percentage depreciation;
• the value lost per year, on average.

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 car value depreciation 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 car value depreciation 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. It can be expressed in terms of absolute value (in dollars, euros, etc.), or in terms of a percentage decrease: -10%, -30%, -50%, and so on. A car which has depreciated in value by 50% can be sold at the market at half of the purchase price.

There are several main drivers of car value depreciation. A car's value starts depreciating the moment it is acquired by a buyer, usually by as much as 10% upon taking ownership. It's worth then decreases drastically during its first year of exploitation, usually dropping between 15% and 30%. From then onward the value 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 car value 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. Further assume that the car is expected to be replaced 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 value 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 in terms of value lost over the period of owning the car should help make it more informed.

    Financial caution

This is a simple online tool which is a good starting point in estimating the car value depreciation in dollars or as a percentage over a specified period of ownership, as well the expected value at the end of the period. The expected value loss is calculated based on industry-sourced average depreciation curves. Averages are by definition rough measurements of the overall car market behaviour and are not expected to align well with any particular car deal. The depreciation rates may further be influenced by general market conditions and given these and other objective shortcomings of this calculator any result it provides should be viewed as just one more piece of information to consider. You should always consult a qualified professional when making important financial decisions and long-term investments such as the purchase of a new or used car. Use the information provided by the car depreciation calculator critically and at your own risk.