Buying a car is a thrilling experience and a dream come true for many. Having your car gives your family and you the freedom to travel safely at your time without having to rely upon public transport. But it is often an expensive business, particularly if you are trying to get an extravagant car. In such cases, individuals choose to buy second-hand cars because their values have depreciated, and they can get good cars at lower prices. Yes, we’re talking about the car depreciation rate in this article.
With that said, whenever you purchase a car, you should know about its depreciation rate — how fast or how much will it lose its price value after a certain timeframe. It will assist you with getting better deals when selling your pre-owned vehicle.
It protects the vehicle proprietor from the financial liabilities of an accident, theft, or any other damage to the car and car proprietor.
Understanding Car Depreciation and How to Calculate It
A car depreciation calculator is an online tool that assists you with giving a quick estimate of your four-wheeler’s current depreciation rate.
To know how car insurance IDV is calculated, you should subtract the present depreciation rate of your car from the manufacturer’s selling price.
The depreciation of your car can be manually calculated in the following two ways, though there are many other strategies:
Prime cost strategy
Cost of running the four-wheeler × (Days you have claimed the car)/365×(100%)/(Effective life in years)
Diminishing value strategy
Value of the car when bought×(Days you have possessed the car)/365×(200%)/(Effective life in years)
Does Car Depreciation Each Year Affect Car Insurance Premium
Depreciation in the car’s value impacts its Insured Declared Value (IDV). The purchase year of the vehicle, its routine wear and tear, and helpful life decide the car depreciation percentage. In addition, depreciation affects the compensation coverage you can avail of on your car against a claim.
The Insurance Regulatory and Advancement Authority of India has standardized the depreciation rates on four-wheelers.
Related: How to Get Fancy Number Plates for Your Cars
How to use a car insurance calculator?
To know the IDV and the depreciation of your car insurance using a calculator, follow the given advances:
- Visit a trusted website providing a car depreciation calculator.
- Enter the ‘ex-showroom’ price of your car.
- Choose the year in which you registered the car.
- Submit by clicking on the ‘Calculate IDV’ button.
You will get an IDV estimate based on the information you have given.
Factors Affecting Car Depreciation Rate
Many factors affect the car depreciation rate, like:
Car’s make and model
Luxury and grand cars have a higher depreciation rate than smaller and normal ones. This is because such cars’ spare parts and maintenance costs are more expensive.
Car’s age
A car’s depreciation rate increases with its age. The vehicle’s physical condition, mileage, and value also rely upon its age.
Maintenance and repairs
A very well-maintained car has a lower car depreciation value.
Previous proprietors
If a car has been under a single possession or has had not many proprietors, its resale value will be higher, and its depreciation value will be lower.
How Does Car Depreciation Affect Your Car Insurance Plan?
When you raise a claim under your car insurance policy for damages, the claim is usually paid after deducting the applicable depreciation rate according to the age of your car.
For instance, we should assume Mr Srinivas raised a car insurance claim for damages to his 2.5-year-old car. The total cost for the repairs came to Rs 15,000. The rate of depreciation applicable to the claim amount would be 30%, which would be Rs 4,500. So, the claim amount he received was Rs 10,500 (15,000 – 4,500), excluding any applicable policy deductibles.
If you want to receive the full claim amount without any deduction according to the depreciation rate, you can decide on the zero-depreciation add-on. This add-on is only available with a comprehensive car insurance plan and assists you with receiving the maximum claim value when you raise a claim for damages.
If you settle on this add-on, your premium can increase. However, it can end up being useful in the long run since you get the full value of the claim amount when you raise the claim.
How Car Depreciation Rate Affects Car Buyers and Sellers
Let’s understand how a car’s depreciation rate affects both car buyers and sellers:
Effect on buyers
Car buyers often aim to buy a car with the lowest conceivable price. However, it is advisable to buy a car with a low depreciation rate instead. You may have to pay a marginally higher amount for such a car, but you will easily recover it when selling it.
Moreover, when you buy a second-hand car, buying a car with a low depreciation value means the car is very well-maintained and reliable.
Effect on sellers
When selling a car, you will get a higher price for a very well-maintained car.
How to Reduce a Car’s Depreciation Rate
Using some measures, you can reduce your car’s depreciation rate and get a higher Insured Declared Value and resale value. These include:
Better car maintenance
A very well-maintained car has a higher resale value and a better IDV. Get your car serviced on schedule from authorized service centres and maintain a record of the car’s servicing. Cars with available service history also will generally depreciate at a lower rate.
Buy a car with a higher resale value
As stated earlier, extravagance cars and cars from certain brands have a better resale value than others. Additionally, avoid buying a car model that may become obsolete shortly.
Get a zero depreciation plan
You can buy a zero depreciation add-on cover with your car insurance policy to claim the amount deducted as depreciation on the four-wheeler’s value.
Conclusion
The car depreciation rate varies based on its make and model. Several other factors affect the depreciation rate of your vehicle, similar to its age, maintenance, fuel efficiency, and previous possession. While only outsider car insurance is made mandatory by the public authority, it is always recommended to go for a comprehensive car insurance plan. These plans offer holistic coverage against own damage as well as from outside liabilities.
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