Any new car experience a drop in its depreciation value, the minute a new car is driven off of the lot. Fundamentally as the car ages, its value will diminish. There are many situations in which the depreciation needs to be calculated such as leasing a car, getting a loan for the car, buying a used car, selling your car, getting insurance, and more. This calculation is very important and many people can even subtract the depreciation of their vehicle on their taxes each year. Herewith all about the steps to calculate the car depreciation.
Step 1: The Original Price
When it was new, you will need the MSRP or sticker price of the vehicle. You can call up a dealer that has the car in stock and get the MSRP or your car may have this information on the original window sticker. The best bet is to provide the dealer your VIN number found on the driver’s side windshield or the door and this is the best way to get the exact MSRP. Any information you may find online or in guides may provide you with a range but does not take into account any additional features your car may have.
Step 2: Residual Percentage
How much the value of the car will have decreased is the residual percentage and it will provide you with the percentage of depreciation in the future. There are many factors that go into this percentage, such as the mileage, life cycle, seasonality, and much more. There are many guides and online sites that will provide you with the residual percentage; one instance being the blue book value. The car manufacturers have calculated these numbers based on historical data. It is critical you use the correct amount of years when finding this percentage.
Step 3: The Calculation
You will want to multiply the MSRP by the residual percentage to give you the depreciated value. So if a car had an original value of $20,000 and after 5 years a depreciated percentage of 45%–$20,000 x 0.45 = $9,000. You can calculate a very accurate depreciation value if you have the correct starting price, which includes all of your packages, customization, and features then.
Step 4: Using the Depreciation Value
The depreciation value can be used for many things. It can be used when you are looking to purchase a new car you want to see the type of depreciation, this need to be realized because some cars have a low depreciation while others will depreciate very fast. The depreciation value is also needed to determine the used car value if you are interested in purchasing a used car. You can use this price to make sure you get a good deal on your car and it is this value that people base their negotiations around.
Step 5: Car Depreciation Calculators
You can use depreciation calculators located online if you do not want to deal with doing this calculation out yourself. These calculators are available on many websites. You need to input in the information and in a minute the depreciation value of the vehicle is obtained. In this case, the car price, the age of the car and a future age of the car are needed (if you want to know what the car value will be in a few years).