How to Determine Your Auto Depreciation

An important part of buying any car is having an awareness of depreciation. According to the Bankrate Web site, as a general rule cars depreciate at about 15% yearly. However, there are multiple factors that affect depreciation beyond that rule. Knowing to what degree and at what rate a car will depreciate can help you make the decision of whether and when to buy, as well as help you negotiate a fair price. There are several factors involved in calculating your car's rate of depreciation. There is not fixed rate of depreciation, and there is no exact formula that works in each situation; however, there are common parameters for determining depreciation.

Instructions

1

Write down on a piece of paper the amount for which you purchased your car. Write down the amount you paid in cash, as well as what you borrowed from a creditor or the dealership, if anything. Write down the interest rate on your loan and what amount in interest you will have paid at the end of the first year.

2

Write down the loan period (how many months the loan is for) and calculate the amount of interest you will end up paying yearly on the principal of your loan (assuming you take the full loan period to pay back the money).

3

Look up the original Blue Book body value of the car and write down that number. Although value does not directly determine depreciation, it does set parameters for depreciation. (It creates a framework within which to calculate and understand depreciation.) Look up the body value of the same car when it is 10 years old. Write this down on the paper as well.

4

Estimate your yearly car maintenance and repair costs. Include routine procedures, such as oil changes, as well as a emergency repairs. Estimate your yearly fuel cost. Include your insurance cost.

5

Add the costs associated with paying for, driving and maintaining your car. Subtract this total from the Blue Book body value of the car--this is your depreciation for the first year. Write down this new value total (the estimated value of your car after one year of driving).

6

Repeat all the steps for each year, taking the new total of the value for each as the new value for the next year. In other words, you are subtracting each total from a new adjusted value each year. Repeat this process for as many years as desired to determine the estimated yearly rate of depreciation for your specific car.