Car depreciation calculator
Last updated: January 1
Considering the purchase of a car is an important decision that comes with various factors to weigh. One crucial aspect that is often overlooked, is understanding the concept of depreciation and its impact on the long-term value of a vehicle.
Car depreciation refers to the decrease in a vehicle's value over time, and having a general idea of how it works can be instrumental in making an informed choice. Allstate’s car depreciation calculator allows you to gain valuable insights into how much a car is likely to depreciate over a certain period. This knowledge could help you plan your investment wisely and get the best value for your money.
Additionally, you may find that certain vehicles are likely to maintain their value better than others - for example, hybrid vehicles and trucks are among the best at retaining their value over five years, according to iSeeCars. Luxury sedans, on the other hand, tend to depreciate much faster.
How does vehicle depreciation work?
Depreciation is when a car loses value over time. This happens because of things like regular use, changes in technology, and what people want in cars. Understanding how depreciation works can help you make better informed choices when buying or selling a car.
Initial car value
When a car is brand new, it has a starting value set by the auto maker called the Manufacturer's Suggested Retail Price (MSRP), says Car and Driver. This is the price you see on the sticker at the dealership. As time goes by, the car's value usually goes down from this starting price. This drop happens because the car gets older and goes through wear and tear. As a result, what people are willing to pay for tends to change.
The car's age
A car's age is simply how many years it's been since it was made. The older a car is, the more it has gone through engine wear, paint fading and interior wear. And because of this, older cars usually aren't worth as much as newer ones.
Mileage is how far a car has been driven, measured in miles. The more a car has been driven, the more it's been used. This can lead to more wear and tear on the engine and other important parts of the car. So, vehicles with higher mileage tend to be worth less than those with lower mileage.
Make and model
The make of a car is the brand, like Toyota or Ford. The model is the specific type of car, like Camry or Mustang. Different makes and models can have different depreciation rates. Some car brands are known for holding their value better than others. Additionally, certain models might be more popular in the used car market, which can affect their value. Understanding how the make and model influences depreciation can help you make a better choice when buying a car.
How does our car depreciation calculator work?
Our car depreciation calculator helps give you an idea of how much a vehicle’s depreciation will cost you in the long run. It can aid you when shopping around for a new car to get the biggest bang for your buck, plus clue you in on whether you’re getting a fair price for a particular used car.
To use the car depreciation calculator, you’ll enter the following:
- Purchase price – the asking price of the vehicle.
- Vehicle age – the year the vehicle was manufactured, as in the vehicle model’s year.
- Years you will own vehicle – an estimate of how long you plan to own the vehicle.
- Future depreciation – this the general rate at which a vehicle is expected to depreciate. As mentioned before, luxury vehicles tend to depreciate faster than pickup trucks or hybrids.
Keep in mind, the calculator offers estimates only. It’s impossible to consider everything about a specific car that may cause it to depreciate. The calculator guesses based on average trends but can’t factor in how well you’ll take care of the car or changes in technology and demand. So, while the calculator can give an idea, keep in mind that it is an approximation.
How can you improve your car’s depreciation value?
If you want to make sure your car keeps its value over time, there are some important things to consider. We'll go through them one by one to help you understand how they can affect your car's depreciation
Regular maintenance and care
Taking care of your car and performing the recommended regular maintenance can potentially prevent more expensive repairs throughout your ownership of the car. Additionally, having detailed service records can help increase the car’s value when it’s time to sell or trade it in, explains Kelley Blue Book (KBB).
Driving habits and mileage management
How you drive and how much you drive matters, according to Bankrate. Aggressive driving can wear out your car faster. For example, if you're constantly slamming on the brakes, it could wear on the braking system, which could affect your car's value. Also, the more miles you put on your car, the faster its value goes down.
Be mindful with car models
Some car models hold their value better than others, says KBB. Do some research before buying. Look for models known for their reliability and popularity. The more popular a certain car model is, the more likely there will be a higher demand for it when you go to sell your car.
While having a completely personalized car can be great for your driving experience, too many customizations can actually decrease its value, according to KBB. Buyers may not share your taste, and undoing customizations can be costly. Stick to minor, reversible alterations. For example, painting your car a different color can make it completely unique, but it might not appeal to most buyers when it comes time to sell, which can lower its value.
Keep in mind, these are just some tips to help you maintain your car's value. Following these could make a difference in how much your car is worth when it's time to sell or trade it in.
Car depreciation and insurance
Understanding how car depreciation affects your car insurance coverage is crucial for making informed decisions. One important term to know is "Actual Cash Value" (ACV). This is the value your insurance company will pay under collision or comprehensive coverage if your car is damaged or totaled in a covered accident or loss. ACV considers the depreciation that your car has experienced over time. For example, if your car is five years old, its ACV will be less than its original purchase price, reflecting its wear and tear.
To calculate ACV, insurance companies consider factors like your car's initial value, its age, mileage and condition at the time of the accident. This helps them arrive at a fair amount to compensate you for the loss.
Agreed value vs stated value
When it comes to insuring your car, it's important to understand the difference between "agreed value" and "stated value." "Agreed value" means you and your insurance company agree on a specific value for your car when you purchase the policy. This value remains fixed, regardless of depreciation. "Stated value," on the other hand, is the amount you believe your car is worth, but it may be subject to adjustment based on factors like depreciation.
When you may need gap insurance
Gap insurance is typically required by your lender if you’re leasing or financing your vehicle. It covers the "gap" between what you owe on your car and its actual cash value in case of a total loss. This is significant because in the event of an accident, your car's ACV might be lower than what you owe on your auto loan or lease.
Car depreciation FAQs
Diminished value refers to how an accident affects vehicle depreciation, according to J.D. Power. There are different types of diminished value but the most common is what is called “inherent diminished value.” This assesses diminished value in terms of the vehicle’s previous damage, typically found in its history reports.
Generally speaking, a vehicle after a major crash will have a reduced market value than the same car model that hasn’t been in a crash, regardless of the repair quality.
Having car insurance doesn't directly prevent your car from losing value over time. Car depreciation happens because cars naturally wear and their value decreases as they get older. However, having insurance can help protect you financially if something bad happens to your car, like an accident or theft.
For example, if you have car insurance and your car gets damaged in an accident, your insurance might help cover the cost of repairs. This means you won't have to pay for everything out of your own pocket, which can be a big relief. An insurer can also help set you up with a reputable repair shop – higher-quality repairs may help your vehicle lose less value than low-quality repairs.
Luxury vehicles tend to lose value faster, according to iSeeCars. That’s because their state-of-the-art features can quickly become outdated. SUVs and pickup trucks, on the other hand, tend to retain their values the best, says Carfax. The reason is because they’re currently in high demand. It’s important to note that there are many factors that affect vehicle value, including but not limited to vehicle age, condition, service reports and accident history.