When you invest in an asset like a car, it's essential to grasp the concept of depreciation. Depreciation is simply the decline in value that occurs over time as you use or own the asset. This principle applies universally to fixed assets, including vehicles. While you may not be able to do much about the depreciation process entirely, having a solid understanding of how to calculate depreciation of a car can help you make informed decisions
Depreciation is simply the reduction in the value of an asset over time when you use it or own it. This applies to all kinds of fixed assets which also includes cars. Car depreciation is also referred to as used car valuation, which is what car depreciation calculators estimate. The general rate of depreciation is decided by government authorities, but it can be influenced by individual factors related to the car as well. The general rates are applicable on the basis of time. Apart from that, factors like the physical condition of the car, functionality and drivability can further influence the rate of depreciation applicable to your car. The federal authorities of the UAE determine the depreciation rate that applies to an asset including the car.
New cars depreciate faster than used cars, usually losing up to 60% of their value in the first 3 years. Understanding car depreciation is important before buying a vehicle, as the depreciated value is what you will get when you sell the car.
The accelerated depreciation method of calculation is the most common way to determine the baseline depreciation of cars and other fixed assets. This way, the depreciation for the first year after the car hits the road becomes equal to the straight-line method while the upcoming one increases for the first few years. The resulting percentage can be later influenced by other factors related to your car.
To simplify the process of estimating your car's depreciation, you can turn to online car depreciation calculators. Auto depreciation calculators use various factors such as the car's make and model, purchase price, age, and mileage, to provide an estimate of its current value. All you need is the initial value of the car when you purchased it and the amount of time for which you have owned it. The time can be in years rather than days here. Simply enter these values in their assigned places to calculate vehicle depreciation, i.e., the value of the car after depreciation. Note that some more comprehensive vehicle depreciation calculators even offer additional value calculations for several timelines rather than just one.
Automobile depreciation calculators use either of these two formulas to calculate car depreciation —
While car depreciation calculators can offer a helpful starting point, it's essential to consider additional factors specific to your car's condition and market trends.
Take a closer look at the estimated standard car value reduction rate —
Year | Car Depreciation Rate |
---|---|
1st year | 0% |
2nd year | 5% |
3rd year | 10% |
4th year | 15% |
5th year | 20% |
6th year and above | 30% |
For rentals, taxis, and public transport, the vehicle depreciation rates in UAE are —
Year | Car Depreciation Rate |
---|---|
Second half of the 1st year | 10% |
2nd year | 20% |
3rd year | 25% |
4th year | 30% |
5th year | 35% |
6th year and above | 40% |
As per a survey of the motor market in the UAE, you can find 5 cars with higher resale value —
The UAE is rapidly becoming a significant used car market. As per reports, the value of used cars increased from 4 to 10 %in the last year. Moreover, used cars are now selling faster and at a more expensive price than before.
This leads to an expert prediction that used cars may depreciate slower in value than new cars and also fetch more during resale.
Depreciation plays a crucial role in determining the insured declared value (IDV) of your car — this, in turn, directly affects car insurance coverage and premiums.
A lower IDV due to depreciation can result in reduced coverage but may also lead to lower premiums.
For example, if your car retains as much as a 50% decline in its value, your insurance plan will also see a similar decline in the assured sum. At the same time, a lower IDV due to the depreciated value of your car means that you will have to pay lower premiums for the car insurance plan.
If that’s something you are looking for, depreciation can actually come in handy. But the result is the same — depreciation will make you lose most of the resale value of the car, which can be problematic if you plan to sell the car when it gets totalled and get a new one.
Car Insurance Add-ons | |
---|---|
Personal Accident Cover | Roadside Assistance |
Engine Protection Cover | IDV-Insured Declared Value |
No Claim Bonus | Passenger Cover |
Having understood how car depreciation calculators work and the associated factors, let’s see what you can do to minimise your vehicle depreciation rate in UAE -
The vehicle depreciation rate in UAE is influenced by various factors, each playing a significant role in determining how much your vehicle is worth over time. While you can always use a car depreciation calculator to check values, it’s also important to understand the impact of each factor.
Here are the factors that affect the car depreciation rate in UAE —
Car depreciation can be confusing if you are a first-time owner with a limited understanding of car depreciation. However, finding out the estimated cost of your car is nothing but easy with easy-to-use car depreciation calculators. However, take note that the actual depreciation applied to the vehicle may differ slightly as per the individual factors that may have an effect on it. Make sure that you take every factor into account when estimating the depreciation that is applicable to your car using a vehicle depreciation calculator. Take a bit of assistance from our experts if you feel the need so that depreciation is calculated correctly.