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Car Depreciation in India

Depreciation is defined as the loss in the value of an asset over time due to wear and tear. This concept is also applicable to cars. Depreciation kicks in as soon as you take delivery of a car, even if you do not use it very often. And as a car continues to age, the rate at which it loses value also goes up.   

To help standardise depreciation in car insurance, the Insurance Regulatory and Development Authority of India (IRDAI) has clearly specified the rates of depreciation for cars. Depending on the depreciation rate applicable for your car, the amount of car insurance premium and the amount that you receive when you file a car insurance claim may vary.

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An Overview of Car Depreciation Rates

In the table below, you will get a better understanding of how much a car depreciates in its value, percentage-wise over different periods of time:

The Car’s Age

The Percentage of Depreciation for Calculation of IDV

Less than 6 months

5%

More than 6 months but not above 1 year

15%

More than 1 year but not above 2 years

20%

More than 2 years but not above 3 years

30%

More than 3 years but not above 4 years

40%

More than 4 years but not above 5 years

50%

 

A fact to note is that the vehicle depreciation rate for distinctive components of your car are assessed separately. The depreciation rate of the vehicle that is mentioned in the previous table serves the purpose of identifying the Insured Declared Value of any given car.

How to Calculate Car Depreciation?

Indian insurers provide you a calculator for car valuation, or an IDV calculator on their respective websites. A calculator that computes vehicle depreciation helps you to determine your used vehicle cost after you factor in the rate of depreciation. In other words, the IDV calculator makes use of the age of your car, it’s condition, and mileage, in order to determine the valuation of your vehicle presently. It does this instantly.

Such a tool can be tremendously useful when you wish to sell your car or buy car insurance when you have a second-hand vehicle. What’s more, the tool is extremely easy to operate. You only have to enter the registration number of your car, the year of its manufacture, the brand and model of the car, the resident city/registration, etc. Sometimes, to generate more accurate results, several IDV calculators suggest that you enter the mileage and details concerning the car’s general condition. Calculating car depreciation by this tool produces results that give you insights into the following:

  • Amounts you will have to receive, or pay, while selling, or buying, any given vehicle

  • Amounts to consider while trading your car at any dealership

  • IDV insurance and costs of premiums

If you wish to calculate the motor depreciation of your car by yourself, you may be able to do so using any of the following formulas:

  • Calculating car depreciation by using the Prime Cost Technique

The formula:

The cost of running the car X (number of days the car is owned ÷ 365)

X (100% ÷ effective life in number of years)

By using this method, the depreciation of the car is calculated as a set percentage of its total cost.

  • Calculating car depreciation by using the Diminishing Value Technique

The formula:

The purchase value of the car X (number of days the car is owned ÷ 365)

X (effective life in number of years ÷ 200%)

In this method, the depreciation of the vehicle is calculated by using the car’s base value.

Car Depreciation Rates for Car Components

Your overall motor car depreciation rate takes into account the rate of depreciation on the car as a whole unit. However, car depreciation separate rates for various components under your car’s hood also must be considered. Here is a table showing this: 

Car Components

Rate of Depreciation

Plastic, rubber, nylon parts, tyres and tubes, batteries of cars, air bags

50%

Paint

50%

Glass car components

Zero depreciation

Fibreglass car parts

30%

 

How to Reduce Car Depreciation

Tricks to reduce your car’s depreciation exist and these aid in the maintenance of its value. Consequently, you can get an IDV and a resale value that is high:

  • Keep your car spruced up and maintained. This prevents wear and tear. Regular servicing is a must too.

  • Make sure you purchase cars with a high resale value. Specific brands and kinds of vehicles have more resale value than others.

  • You can buy a used car in mint condition. This means that even if it is a second-hand vehicle you are buying, it is already in good condition and its further resale value will be high.

  • Run your car on shorter distances. The more kilometres that your vehicle travels, the more it gets depreciated in value.

To Conclude

If you plan on purchasing a car, or even wish to buy a used one, knowing about car depreciation helps. Moreover, depreciation on cars as per income tax rules, lets you claim deductions for depreciating value in vehicles (upto 15%). In terms of insurance, information on car depreciation lets you know the way that premiums are computed and charged. If you are the owner of a vehicle, insurance is a must to drive. You can select from a number of car insurance plans that safeguard you and your vehicle at Finserv MARKETS. 

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FAQs

✔️How do you calculate depreciation on a car?

To calculate the depreciation value of a car, you can use the online IDV calculator. All you need to do is enter your car’s ex-showroom price in the calculator, along with its registration year. The calculator will then compute your vehicle’s depreciation value.