Understanding Car Depreciation: Which Vehicles Hold Their Value Best

When it comes to automobiles, depreciation explains how much the car’s value has decreased over time. It’s the difference between what you paid for the vehicle and its current worth. Cars will depreciate for many reasons including how many kilometres you’ve driven it and how well you have maintained it.

With car insurance, depreciation can affect how much you’ll be reimbursed when you make a claim.

Vehicles depreciate due to many factors. Some cars hold their value better, such as pickup trucks, SUVs, and sports cars. Electric vehicles and luxury sedans are reported to lose their value faster. A few of the top cars with the lowest depreciation include Toyotas and Jeeps, versus BMW vehicles, which held three of the top ten spots for the highest rate. Here are a few more reasons why it will depreciate:

• The more mileage a vehicle has, the higher the depreciation.
• If a car is “like-new,” it will hold its value longer. The more scratches and damages, the lower the value.
• Cars with better fuel-efficient depreciate slower.
• If your vehicle has a high safety and reliability rating, it will hold its value.
• Technology such as Bluetooth, wireless charging and remote start are becoming more popular and even a standard in most cars. If yours does not have them, it can lower the value. New car safety features are also a bonus.

Insurers calculate the actual cash value of a vehicle by considering its age, kilometres driven, make and model, fuel economy, and wear and tear. Older vehicles lose value over time due to new models being introduced in the market.

A car's value decreases with the number of kilometres it has been driven. Cars with better reputations and fuel economy hold their value better. Cars known as "gas guzzlers" depreciate more quickly. Wear and tear also takes away from a vehicle's value.

Although the largest amount happens when you drive off the lot, some cars can lose 20% of their original value within the first year. After the fifth year, it could have lost up to 60% of its original value.

All vehicles depreciate at different rates, so the exact depreciation varies significantly from vehicle to vehicle. Studies show that new cars depreciate 20-30% per year.

However, to get a rough estimate, you can look up your car's current fair market value and subtract that from the purchase price. Remember to leave out any taxes or fees that you paid.

If you’re considering buying a car, look up the fair market value of older versions of the make and model to get a sense of the car’s value in the future. It's important to remember that every vehicle will have a different depreciation rate.

Here’s a sample calculation you can use to estimate how much your new vehicle depreciates each year:

• After year one = Purchase price x .20%
• After year two = Year one value x .10%
• After year three = Year two value x .10%

Based on the OMNI calculator, if you spent $32,000 on a brand new vehicle, the deprecation will drop the value to around $25,920 after one year, $22,080 after two years, and $18,560 after three years. It's important to remember that every vehicle will have a different depreciation rate when you are calculating yours.