What is Car Depreciation Rate?

As your car ages, it loses its value. Hence, a car that is a few years old is priced at a lower value as compared to a brand-new vehicle. This is because of the depreciation components in all cars. But exactly what is car depreciation rate and how is it calculated? Let’s find out.

What Is Car Depreciation Rate?

Depreciation in a car refers to the reduction in its value due to age-related wear and tear within the vehicle. A new car, with its new components, is guaranteed to function well and so a new vehicle has a high value. As it ages, the performance begins to fall and so does the value. This is depreciation in vehicles.

Does Car Depreciation Per Year Affect Car Insurance Premium

The depreciation rate in car insurance has a direct impact on the premium. The depreciation rate has been fixed by the IRDA in India and the insurance premium is charged accordingly. Here’s a look at the slab that is commonly followed:

Age of the car	Depreciation rate (%)
Under 6 months	5
Between 6 months and 1 year	15
Between 1 and 2 years	20
Between 2 and 3 years	30
Between 3 and 4 years	40
Between 4 and 5 years	50

NCB in car insurance and the depreciation rate are both very important factors. When you are buying or renewing your car insurance policy, make sure these calculations are carried out properly for you to get the best premium rate.

Factors Affecting Car Depreciation Rate

1. Expensive, high-end cars have a higher rate of depreciation. Hence, the make and model number of a vehicle plays a determining role in its depreciation rate.

2. The age of the car is directly proportional to the rate of depreciation. The older the car is, the higher the depreciation will be and vice-versa.

3. A car that is kept and maintained properly attracts a lower depreciation rate, as compared to one that is badly in need of maintenance.

4. Vehicles that display good fuel efficiency attract a lower depreciation rate as compared to vehicles that have a lower fuel efficiency.

Conclusion

It is important to know what is car depreciation rate is, especially if you are looking to sell your car or buy a pre-used vehicle. Keep all the points mentioned above in mind and pay the correct value for the vehicle, based on its depreciation rate.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.