Definition

Depreciation is the decline in value of an item or asset over time. The rate of depreciation is also related to use and aging of the asset or item.

Factors

The brand, make and model of a vehicle, the options on that vehicle and age, quality, condition and mileage can all have an effect on the depreciation of that vehicle.

Considerations

The first year is the worst for most vehicles. As soon as a car is driven off the lot, its value can go down several thousand dollars.

General Formula

A general formula for depreciation is 15 percent to 20 percent per year. A car worth $30,000 may depreciate by $6,000 in its first year, which would make it worth $24,000. The same car may depreciate by $4,800 (20 percent of $24,000) in its second year. This pattern is the same for each subsequent year.

Alternate Formula

The straight-line method of depreciation allows an equal rate over the vehicle's class life (generally five or six years). The final value is the vehicle's salvage (scrap) value. A $30,500 car with a projected scrap value of $500 would depreciate by $5,000 per year over six years (16.67 percent per year, $30,500 minus $500) using this method.

Warning

A vehicle's depreciated value is not necessarily the same as the "blue book" value. At best, depreciation is an educated guess.

Source

How Much Has Your Car Depreciated?

Understanding Auto Depreciation

Estimating a Car's Depreciation