For all the car enthusiasts and soon-to-be car owners out there, have you ever wondered why the value of your car drops the moment you drive it off the showroom floor?
Today, we’re diving deep into the concept of car depreciation in India and how it impacts your car insurance and overall finances.
So, buckle up and let’s hit the road. This blog explores everything you want to know about car insurance, car depreciation rates, and car depreciation calculators in India.
What is Car Depreciation?
First things first, what exactly is car depreciation? In simple terms, car depreciation refers to the decrease in the value of your vehicle over time. That is an inevitable part of owning a car, as wear and tear, mileage, age, and technological advancements all contribute to reducing your car’s market value.
Why Must You Care About Car Depreciation?
You might wonder, “Why should I care about car depreciation?” Well, understanding car depreciation is crucial for several reasons:
- Resale Value: When you decide to sell your car, depreciation determines how much money you can get back.
- Insurance Claims: In case of an accident or theft, your car insurance payout will be based on the depreciated value of your car.
- Loan Value: If you’ve taken a loan to purchase your car, the depreciation rate can affect the loan-to-value ratio.
Factors Influencing Car Depreciation Rate in India
Let’s break down the key factors that influence the car depreciation rate in India:
- Age of the Car: Generally, a new car loses around 20-30% of its value in the first year and then around 10-15% per year in the following years. That is known as the car depreciation per year.
- Mileage: The more kilometres you clock, the higher the depreciation. A car with high mileage is perceived to have more wear and tear.
- Condition: A well-maintained car with a clean service history depreciates slower than a car with a history of accidents or poor maintenance.
- Brand and Model: Some brands hold their value better than others. Luxury cars tend to depreciate faster than economy cars.
- Market Demand: If a particular model is in high demand, its value will depreciate slower than a model with lower demand.
Car Depreciation Rate in India
In India, the Insurance Regulatory and Development Authority (IRDA) has standardised the depreciation rates for insurance purposes. Here’s a quick look at the standard depreciation rates:
- Up to 6 months: 5%
- 6 months to 1 year: 15%
- 1 to 2 years: 20%
- 2 to 3 years: 30%
- 3 to 4 years: 40%
- 4 to 5 years: 50%
- Over 5 years: It is left to the insurer and vehicle owner to decide.
How to Calculate Car Depreciation in India?
Calculating the depreciation on car rate can be done using a car depreciation calculator in India. Many insurance companies and financial websites offer online calculators where you can input details like the car’s purchase price, age, and mileage to get an estimated depreciated value.
For example, if you bought a car for ₹10 lakhs and it’s 3 years old, the depreciated value would be ₹6 lakhs.
Below are the two ways to calculate the depreciation of your car manually, although there are many other methods:
- Prime cost method: Cost of running the 4-wheeler × (Number of days you have used the car)/365 × (100%) / (Effective Car Life in the number of years)
- Diminishing value method: Value of the 4-wheeler when purchases × (number of days you have used the vehicle) / 365 × (200%) / (Effective life in years)
Car Insurance and Depreciation
Now, let’s talk about how car depreciation impacts your car insurance. When you buy car insurance online or offline, the premium you pay is partially based on the car’s IDV, which takes depreciation into account.
Zero Depreciation Cover
To mitigate the impact of depreciation, you can opt for a zero depreciation cover, also known as a bumper-to-bumper policy. With this add-on, the insurance company will not consider depreciation while settling claims, meaning you’ll get a higher payout. This cover is particularly beneficial for new cars or cars up to 5 years old.
Tips to Minimise Car Depreciation
While you can’t stop depreciation, you can take steps to slow it down:
- Regular Maintenance: Keep up with routine services and maintain a clean service record.
- Drive Safely: Avoid accidents and maintain the car’s condition.
- Keep mileage Low: Use your car judiciously to keep the mileage in check.
- Park in a Garage: Protect your car from harsh weather conditions.
- Choose Popular Models: Opt for brands and models known for retaining their value.
Final Thought
Understanding car depreciation in India is essential for every car owner. It affects not only the resale value but also your car insurance premiums and claims. By being aware of the factors influencing depreciation and minimising its impact, you can make smarter financial decisions and get the most out of your vehicle.
One of the prominent names in the Indian insurance market is Future Generali. They offer comprehensive motor insurance policies that include zero depreciation cover, ensuring you’re adequately protected against the financial impact of car depreciation.
So, the next time you’re looking for car insurance online, don’t forget to consider the depreciation factor. Whether you choose a standard policy or a zero depreciation cover from a reliable insurer like Future Generali, being informed will always keep you a step ahead.
