If your car has been damaged in a wreck, this evidence of repairs can negatively affect the value of your car should you ever decide to sell or refinance it in the future. This reduction in worth is known as Depreciation Value. Depreciation Value is an insurance concept that was developed initially to estimate the loss of value of an auto following an accident. Even if your car displays no obvious damages it may still experience inherent Depreciation Value since you may have a legal obligation to disclose to any potential purchaser of the vehicle that it has previously been involved in an accident. Calculating diminished value can be done several ways, depending on who is doing the calculating. To learn How To Calculate Depreciation Value Of A Car After An Accident continue reading.
What is depreciation? – the depreciation definition
In the simplest terms, depreciation is the decrease in value. Imagine that you bought a car for $20,000. After a few years, the car is not what it used to be in the beginning. You will probably agree that selling it for $20,000 again would not be especially fair – you have some sort of a gut feeling that it is worth much less now.
Economists would say that your car has depreciated over the last few years. They would also add that the basic concept of depreciation is to reflect the reduction in value of a car over time. Moreover, they would point out that the main reasons for this reduction are factors such as car design aging, wear, and tear. The more formal definition of depreciation says that it is the method of calculating the cost of an asset over its lifespan.
How fast does the car value decrease?
You might be surprised, but the value of your car decreases to 91% of the initial market value the minute you purchase it. Why? Well, it’s all in the perception of a next prospective buyer. At the moment you buy it, the car’s state moves from “new car” to “used car”, and even though it’s been used for just for one minute, its value drops significantly.
- After a year, your car’s value decreases to 81% of the initial value.
- After two years, your car’s value decreases to 69% of the initial value.
- After three years, your car’s value decreases to 58% of the initial value.
- After four years, your car’s value decreases to 49% of the initial value.
- After five years, your car’s value decreases to 40% of the initial value.
Car depreciation calculator assumes that after approximately 10.5 years, your car will have zero value. Of course, you will still be able to sell it to individual buyers, but its market value will be extremely low.
In reality, each brand and model of a car loses its value at a slightly different rate; formally we say, it has its car depreciation rate. Still, you can use this calculator to show you what the value will be more or less after a certain time has elapsed.
How To Calculate Depreciation Value Of A Car After An Accident
You can use Car Depreciation Calculator in two ways:
- The first one is to input the initial car value – the new car purchase price. Then, the car depreciation calculator will automatically display the value after given periods of time listed in the previous paragraph. If you want to calculate the value after a different amount of time has elapsed (for example, after half a year or seven years), you can input a custom car age as well.
- The second method is estimating the initial value of the car. Let’s assume you were offered to buy a three-year-old car for $12,000. If you input the value into the “3 years” box, the car depreciation calculator will display the initial value of the car – in this case, over $20,500. You can now compare it to the price of a brand new car. If it is higher, for example, $25,000, it seems that you have found yourself a real bargain! And if you still can’t afford it, maybe think about leasing it?
The easiest way to figure out the sale value is by using a website like NADA or Kelley Blue Book, where you can plug in the basic information about your car and they’ll show you the rough trade-in value, the average trade-in value, the clean trade-in value, and the clean retail value.
You will start by entering some information about your car, likely starting with the make, model, year, and mileage. While you are finding the estimated value of your vehicle from when you first purchased it be sure to include all the special features. This step is important because special features can be different between models, even if they were released close to one another. Be sure to document everything your car has like a backup camera, a built-in navigation system, or a sunroof—all of which will affect the value of your car.
Next, you’ll subtract 33% from the sale value, which provides you with a rough estimate of your car’s value following the accident.
After determining your vehicle’s post-accident value, subtract that from the vehicle’s sale value and this should give you an approximate estimate of the loss, otherwise known as the diminished value.
For instance, if your car was placed at an estimated value of $7,200, your formula would look like this: $7,200-($7,200 x .33)= $4,824.
This formula is a useful starting point, but it does not replace having your vehicle looked at and accurately valued by a professional, especially if you still plan to drive the car following your accident.
If it turns out that the damage done to your car during the accident is too extensive and you find yourself in the market for a new vehicle, keep an on on the ever-changing prices at dealerships near you. Your best bet will likely be to wait until the end of the year so you can score on some end-of-year car plate deals where you can save yourself thousands of dollars.
1: How much does a car depreciate after an accident? The amount a car will depreciate by after an accident depends on the amount of damage done. There is a lot of difference between losing a wing mirror and being in a car totalling accident. You can expect only some depreciation for the former, while the latter will be substantial, even if fully repaired.
2: How much does a car depreciate per year?
|Years after purchase||Percentage of original value lost (%)|
3: Do hybrid cars depreciate faster? No, hybrid cars depreciate slower than petrol cars. Although this wasn’t the case when hybrid cars first hit the market, a study conducted in 2017 found that the reverse was now true. So, if you want your car to retain its value for longer, consider buying a hybrid.
How much does a car depreciate per mile?
There is no rule of thumb for car depreciation per mile, it varies massively from car to car. Your best bet is to go online and see how the cost of your car changes with the number of miles done – keeping as many other variables the same.