Car Depreciation Rate Calculator – Vehicle Depreciation Rate Per Year in India

Updated on Feb 22, 2024

Understanding in depth how the rate of car depreciation is calculated every year in India and what it means for the car owner. Know more about the car depreciation rate, vehicle depreciation types, and how you can use car depreciation calculator!

What is Car Depreciation Rate or Vehicle Value Depreciation?

Due to natural wear and tear, the worth of a car depreciates or reduces with time. This depreciation can be calculated with a car value calculator. Thus, car value depreciation means the decline in a vehicle’s value in due course of time and it is influenced by different factors.

Vehicle/Car Depreciation Rate Calculator India – Concept and How it Works?

As soon as you acquire your car from the showroom and drive it on the road, its position reduces from a new car to a used car, and its value goes down noticeably. In fact, this automatically brings down your car’s original market value to 91%, which keeps decreasing with each passing year.

So, to calculate the value of your used car, a Car depreciation rate calculator is used. This tool evaluates the price of your car, and alternatively, it is also used to check the fairness of the price for a used car that you would like to purchase. Thus, with a car depreciation calculator in India, you can calculate the yearly cost of car acquisition.

There is a laid format to ensure the rate of depreciation of cars for calculation of their Insured Declared Value (IDV) as put forward by Insurance Regulatory and Development Authority of India (IRDAI).

Also Read: Second hand car insurance

How Does Car Depreciation Affect Buyers and Sellers?

Car depreciation generally has an impact on both the buyers and sellers who are a part of the used vehicles deal. Let’s take a quick look at how it affects both the involved parties.

Impact on Buyers: While it makes sense to buy any vehicle at the best deal possible, which often means the lowest price on offer in the market, the depreciation value of the vehicle does play an important part in determining its market price. For instance, it is generally advisable to always buy a vehicle with the least depreciation value. However, that said, it also means paying a slightly higher price for it. It is still advantageous to the buyer though since they can always recover the premium paid at the time of sale of the vehicle.

Impact on Sellers: Depreciation of the vehicle does have a direct impact on its sale value. A lower, or the least, depreciation of the vehicle generally implies high benefits to the seller in terms of higher monetary returns at the time of sale.

How Can You Use a Car Depreciation Calculator, India?

You can use a car depreciation calculator in three easy steps by following these instructions:

Step 1: Enter your car’s ex-showroom pricing.
Step 2: From the dropdown menu, choose the year that your car was registered.
Step 3: Click the “Calculate IDV” button from the menu.

You will be given the suggested IDV depending on the information provided and the age of your car.

Car Depreciation Rate Calculator Table for Calculation of IDV with Example Values

As discussed above, IDV is computed based on the selling price stated by the manufacturer of the exact same model of the vehicle in the year the IDV is calculated. For better understanding, let us take the example of Maruti Suzuki and its IDV calculation:

Types of Car Depreciation Calculator Insurance Plans

There are essentially three types of depreciation calculator insurance plans provided to the car owner. These include:

1. Third Party Car Insurance: The most basic form of car insurance mandated by the Indian Motor Vehicle Act, 1988. It is a must-buy for every car owner before driving the vehicle on the road and is designed to provide insurance coverage for any loss to a third-party person or property by the insured vehicle. However, it does not provide coverage for any loss to the insured vehicle itself.
2. Standalone or Own Damage Car Insurance: As the name suggests, this car insurance is designed to cover any loss or damage to the own vehicle of the insured, owing to any natural or man-made disasters, and not loss or damage to the third party.
3. Comprehensive Car Insurance: This car insurance plan is designed to offer the maximum coverage to the insured by providing protection against both third-party losses as well as damage to one’s own vehicle.

Car Value Depreciation Rate in India As Per IRDAI

To know how much depreciation on a car per year or how to calculate car depreciation value in India one can go through the below table.

How Fast Does the Car Value Decrease in India?

• IRDAI states that the depreciation rate for 0- 6 month old cars is 5%.
• For 6 months – 1 year old car, the rate is 15%.
• For 1-2 year old car, the depreciation rate is 20%.
• For 2-3 year old car, the rate is 30%.
• Likewise, if the age of car is 3-4 years, the rate of depreciation is 40%.
• And for 4-5 year old car, the depreciation rate is 50%.
• For cars that are 5 years and beyond, the rate is decided mutually between the insurer and the vehicle owner.

Here, it is important to understand that there is a difference between depreciation value and depreciation rate, and you shouldn’t confuse one term with another. When it comes to car value depreciation rate, it is your car’s (asset’s) depreciated estimate calculated in percentage across your asset’s expected productive period. On the other hand, depreciation value of a car (asset) is the cost that is substituted for its price minus its remaining value.

Depreciation Rate for Cars as per the Companies Act

The Companies Act of 2013 details the rates of depreciation that can be applied to the different assets of a car. Part ‘C’ of Schedule II of the Act enlists the depreciation rates for motor cars, motor buses, and motor lorries used in the business of hiring operations as follows:

• In accordance with Written Down Value (WDV): 39.30%
• In accordance with Straight Line Method (SLM): 15.83%

Motor lorries, motor buses, and motor cars not used in the business of hiring operation have the depreciation rates as listed below:

• In accordance with WDV:  31.23%
• In accordance with SLM: 11.88%

Depreciation Rate of Cars and Bikes After 5 Years

Every vehicle starts depreciating with regular wear and tear after 5 years of continuous use. This is sometimes despite the regular service and maintenance of the vehicle which do play an important role in its condition. Generally speaking, the vehicle tends to turn outworn after a period of 5 years. This applies to all vehicles, including bikes and cars. The depreciation rate is accordingly applicable on both these types of vehicles:

• In case of car depreciation after 5 years, the car owner and the insurance company mutually agree upon the depreciation rate calculable. They agree upon a specific range for IDV calculation.
• In case of bike depreciation after 5 years, the policyholder and the insurance company are the ones mutually deciding the depreciation rate applicable for IDV computation. This is generally done to avoid any disagreements or misunderstandings between the two parties.

Also Read: Difference between hatchback and sedan

What is the Depreciation Rate for Particular Components?

Checkout the below table to know the car components with their rate of depreciation –

Factors Affecting Depreciation of Car

There are varied reasons that lead to the depreciation of a car including maintenance, conduct, model and so on. For a car to have a better depreciation rate, the factors that primarily influence are:

• Make of the car: The car value depreciation rate of large luxurious cars is more as compared to smaller and compact cars as the large cars belong to the category of elite and expensive models.
• Mileage and condition: The condition or the wear and tear of a car and its mileage also serve as an important factor in calculating its value. The older and the more the car is used, the lesser its resale value.
• Fuel-saving: The car that saves more fuel is better and thus has greater resale value. These cars offer more depreciation rate as compared to others in their league.
• Maintenance and repairs: The more a car is maintained, the better resale value it offers. Thus, the depreciation value would be lower in such cases.
• Car owner: If a car is singly handled or has fewer owners, it means it has a better chance of getting good resale value. So the rule of thumb for calculating depreciation is – the fewer the owner of a car, the better it is.

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How to Calculate Car Depreciation Rate Online?

The internet is flooded with numerous online tools that allow easy calculation of car depreciation to estimate the probable resale cost of a used car.

Further, we are listing out two different formulas to estimate the same. One of them is the Prime Cost Technique and the other is the Diminishing Value Technique.

1. Prime Cost Technique: In case of prime cost technique, the depreciation is calculated based on a set cost percentage.
Depreciation Formula (Prime Cost Method) – Asset’s cost x (days held ÷ 365) x (100% ÷ asset’s effective life)

2. Diminishing Value Technique: In case of diminishing value technique, the estimate is based on the worth of the car.
Depreciation Formula (Diminishing Value Technique) – Base value x (days held ÷ 365) x (200% ÷ asset’s effective life)

How to Minimize Car or Vehicle Depreciation?

By taking certain measures, it is possible to curtail/minimize the depreciation of a car and to enhance resale value to get higher IDV. These include:

Shape of your car (maintenance): If your car is in good shape in terms of maintenance, you have better chances of receiving good resale value of your car. So, try and preserve the maintenance papers of your car intact and try to evade alterations of any kind in your vehicle.

Purchase luxury car with high-resale value: There are many models of cars that offer better resale value as compared to others. You can do some study on resale value of cars before purchasing one to avoid buying a car with high depreciation.

Get a zero depreciation plan: If you get the zero-depreciation add-on plan with your Car insurance, you can claim for the deducted amount for the depreciation.

Also Read: IRDA car insurance claim settlement ratio

What is Zero Depreciation in Car Insurance?

As suggested by the name, zero depreciation in case of car insurance refers to an add-on cover that entitles the car owner to a zero or nil depreciation charge from the insurance provider for the insured car in question. In this case, the policyholder or car owner is entitled to claim the total cost involved in any damage caused to the vehicle during an accident, such as that incurred on parts replacement, and the like. Also, with the zero depreciation add-on cover, the depreciation value for damaged parts is not deducted before claiming the total cost.

Some of the key benefits of availing of this cover include:

• No depreciation charged during claim settlement enables the claimant to claim higher
• Better savings since higher payouts help cover the car depreciation as well as that of any damaged parts
• Cost of this add-on cover is relatively lower when compared to the benefits it offers to the policyholder

Example of Depreciation for Cars

Here’s a small example to help you understand depreciation in cars.

Let’s say Ramesh bought a car that cost Rs. 5,50,000. He used the car regularly for 2 years, after which, the car’s Current Market Value (CMV) is estimated at Rs. 5,20,000. This means that the value of the car has now gone down after 2 years. To compute the IDV during this period of 2 years, the rate of depreciation that can be applied on the car will be 20%.

The IDV of Ramesh’s car is therefore:

IDV = 80% of Rs. 5,75,000

Hence, IDV of Ramesh’s car = Rs. 4,16,000

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How Car Depreciation Affects Your Car Insurance Costs?

We already know now that car depreciation indicates the lowering in value of a car over a period of time due to certain factors such as the age of the vehicle, its current condition/maintenance, size of the engine, overall mileage, and the like.

Now, the depreciation of a vehicle has a direct impact on the cost of its insurance as well. This is because a car that is more prone to damage or accident chances tends to attract a higher premium for its owner.

Also Read: How to Choose the Right Car Insurance After a Valuable Comparison?

Conclusion

Depending on the brand and model of a car, its depreciation value differs. Thus, we can say that a car losses its value at different rates as per its brand or model. However, with the help of a car depreciation calculator India, you can find out whether the value of your car would be more or less beyond a specific period of time.

Further, be it for buying a new car or selling an existing one, it is important to take into account the depreciation factors. And by using a depreciation calculator, it becomes easy to calculate the probable resale worth of your vehicle. Here, it is important to keep in mind that depreciation slows down with the age of a car.

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