Car Depreciation Calculator
This calculator can be used to estimate the depreciation in a car’s value over time. The calculator only requires four inputs by the user:
- The purchase price of the vehicle
- The age of the car when purchased. For example, if the car is new, enter zero. For a used car that is three years old car enter three
- The number of years you intend to own the car
- The rate of deprecation to use, which can be high, average or low – more on this later
The calculator then provides the user with five data points or sets of values:
- The deprecation occurring each year for the timespan selected earlier
- The total depreciation over the entire timespan selected for this calculation
- The average depreciation across all years
- A graph of the vehicle’s change in value over time
Modeling assumptions
The following table contains the consensus estimates published by a number of authoritative new and used car sources in terms of annual depreciation rates.
| Depreciation Rate | New | Used |
|---|---|---|
| High | 25% | 18% |
| Average | 20% | 15% |
| Low | 15% | 12% |
What is depreciation and how does this concept apply to cars?
Depreciation is actually an accounting concept used to allocate the cost of an asset (in this case a car), over its useful life. Just like machines used in the production of widgets, cars experience mechanical wear – no matter how well they are cared for by their owner. For this reason, older cars are less valuable than newer cars of the same make and model. This calculator models the depreciation in a car’s value over time due to mechanical wear and other time-related factors which influence the price a buyer is willing to pay for a car.
Cars with high and low rates of depreciation
There are nearly 200 brands representing both new and used cars in the world as of this writing. For example, the company Toyota makes five different brands of vehicles: Hino, Lexus, Ranz, Daihatsu and Toyota; while General Motors makes four brands: GMC, Chevrolet, Buick and Cadillac. For a variety of reasons, some car brands experience a higher rate of depreciation than others. A high rate of depreciation means a car loses its value faster, while a low rate of depreciation means a car holds onto its value longer.
The accompanying table provides examples of car brands experiencing High and Low levels of depreciation. When it doubt, selecting Average will provide the user of this calculator with an adequate estimate.
| Low | High |
|---|---|
| Mazda | Alpha Romeo |
| Subaru | Land Rover |
| Porsche | Mitsubishi |
| Honda | Jeep |
| Lexus | Lincoln |
| Toyota | Jaguar |
| Chrysler | GMC |
If you want to learn more on this topic, take a look at our blog article Avoiding High Rates of Depreciation.