The moment you sign a purchase agreement and drive a vehicle off the lot, it begins losing value. Since the vehicle is considered “used” as soon as you get behind the wheel, it can never be sold as a new again. Understanding how vehicles depreciate and how to calculate vehicle depreciation can play a key role in calculating how much your vehicle is worth when you’re creating a plan for trading in or selling your car.
How Much Does a Vehicle Depreciate Per Year?
While the answer to that question can largely depend on what kind of condition you keep your vehicle in, there are some ways to get a ballpark idea of a vehicle’s depreciation. Obviously, if you don’t maintain the vehicle through regular service visits or you are involved in accidents, depreciation will speed up considerably. However, there are some general principles of vehicle depreciation that are the same across the board.
First of all, most vehicles depreciate by roughly 20% within the first year of ownership. Hypothetically, let’s assume that you bought a vehicle for $30,000. At the beginning of your 13th month of ownership, it’s probably worth around $24,000. As the vehicle ages, depreciation speeds up. By the end of the fifth year, your vehicle could have lost as much as 60% of its original value, making it worth only $12,000.
How Do You Calculate Vehicle Depreciation?
There are several factors that go into a vehicle’s depreciation, including:
- Make and Model: Some brands of vehicles hold their value for longer than others. For instance, Jeep and Toyota make up five of the top 10 vehicles in regard to maintaining their value.
- Mileage: A vehicle that is driven a lot and has more miles on its odometer depreciates faster than a vehicle that rarely gets driven.
- Overall Vehicle Condition: If the body and engine are both showing significant signs of wear, the vehicle is worth less than another vehicle in better shape.
As a general rule, you can use a simple formula in order to get a ballpark idea of a vehicle’s value after depreciation.
Value of Car After n Years = Purchase Amount * (1 - Percentage Rate of Depreciation Per Year/100)n
Depreciation Amount = Purchase Amount - Value of Car After n Years
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