Pre-Owned Car Loan

What is Depreciation and Factors That Affect It in Case of a Used Car

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3/7/25 9:28 AM  | 2 Minutes
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If you are planning to buy or sell a used car in India, there’s one critical concept you shouldn’t overlook – car depreciation. Whether you are a first-time buyer or looking to upgrade your vehicle, understanding how depreciation works can help you make smarter financial decisions. In this blog, we will walk you through what car depreciation is, why it matters, and the key factors that influence the resale value of a used car.

What is Car Depreciation? 
 

Car Depreciation Factor

Car depreciation refers to the reduction in a vehicle’s value over time due to wear and tear, age, mileage, and other factors. Simply put, the moment you drive a new car out of the showroom, it starts to lose value. Over the years, this drop in value continues, albeit at varying rates.

Quick Snapshot of Typical Depreciation

Age of Car

Estimated Depreciation from Original Price

1 year

(15–20) %

2 years

(25-30) %

3 years

(35-40) %

5+ years

(50-60) % or more

 

Why Car Depreciation is Important When Buying or Selling a Used Car

Car depreciation plays a key role in determining the fair value of a used car.

If you’re buying:

•    You don’t want to overpay for a car that’s already lost a big chunk of its value.
•    Understanding depreciation can help you negotiate better.
•    You can estimate the car’s resale value down the line, which impacts your total cost of ownership.

If you’re selling:

•    Knowing the depreciated value helps you price your vehicle realistically.
•    A well-maintained car with lower depreciation fetches better resale value. 

Factors That Affect Used Car Depreciation

Several variables influence how quickly your car loses value. Here’s what you need to keep in mind:

1.    Age of the Car: The older the vehicle, the lower it’s market value. Depreciation is highest in the first 3 years.
2.    Mileage: Cars with high mileage tend to depreciate faster as they have likely been subjected to more wear and tear.
3.    Brand and Model: Popular and trusted brands such as Maruti Suzuki, Toyota, and Hyundai tend to hold better value than niche or luxury brands.
4.    Fuel Type: In India, petrol cars usually depreciate slower than diesel variants due to regulatory restrictions and maintenance costs.
5.    Service History: A complete and clean service record boosts resale value. Missed services or unrecorded repairs speed up depreciation.
6.    Insurance Claims: Frequent or major claims lower the car’s resale value as they indicate poor upkeep or previous damage.
7.    Location: Urban cars generally have higher resale value than rural ones due to better road conditions and lower wear. 

To Conclude

Car depreciation may not be something you think about every day, but it significantly affects your finances, especially when you are in the market for a used car. Being aware of factors like age of the car, mileage, brand and model, fuel type, service history, insurance claim and location will help you make informed decisions.

If you are planning to buy a car and are looking for a hassle-free loan, Poonawalla Fincorp offers Pre-owned Car Loan of up to ₹75 lakh with flexible repayment tenure of up to 72 months. 

Frequently Asked Questions

1. Can I reduce the depreciation of my car?
Yes, regular maintenance, avoiding accidents, keeping mileage in check, and timely servicing can slow down depreciation.

2. Is it better to buy a car that has already depreciated?
Yes, buying a 2–3-year-old car gives you more value for money as the steepest depreciation has already occurred.

3. How is car depreciation calculated in India?
Car depreciation is calculated based on guidelines set by the IRDAI. For example, 20% for the first year, 30% for the second year, and so on.

4. Can a service history reduce depreciation?
Absolutely, a well-documented and timely service history can significantly boost a car’s resale value and reduce depreciation.

About the Author

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Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.

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