Vehicle depreciation is the rate at which your car’s value declines over time. It’s important to understand how your vehicle loses its value so that you can get the best offer when it’s time to sell or trade it in.
This also helps when you’re on the market to buy a car because some vehicle makes and models may depreciate faster than others. Also, if you’re financing a car, you don’t want to land up in a situation where you start owing more on the car loan than the actual value of the car.
Of course, not everything can be painted with the same brush. There are a number of factors that influence vehicle depreciation as we’ve written about in this article which shows you different ways to maximise the resale value of your car.
How to calculate depreciation on your car
Estimating how much value your car has lost is quite simple: subtract the car's current fair market value from the price you purchased it at. I.e.:
Purchase price – Current market value = Value of depreciation
Where to find your car’s market value
Find out your car’s estimated fair market value by using the many online tools available. Many vehicle traders like Autotrader, Webuycars, and Weelee have free online valuation tools, and so do insurance sites like Sanlamreality.
Book value vs. market value
Understand the difference between book value and market value:
- Book value – an industry guideline that car dealerships use in order to determine a purchase price when buying or selling a car.
- Market value – also known as retail or trade value, this is the price that you will be able to sell the car for, and considers factors such as the mileage, condition, scarcity, and make of the vehicle. This tends to be the closest value to the car’s replacement cost.
This information will help you get a rough idea of how much your car will depreciate over time, while all influencing factors must be considered.
When buying a new or used car, you can try and limit depreciation by choosing a popular make and model or type of vehicle like a bakkie or SUV, as these generally depreciate the least.
As for your current vehicle, to help slow down its depreciation rate as much as possible, opt for a gentle driving style and keep your car well-maintained. This will also go a long way to better road safety for you and other road users.
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