From odometer reading to brand value, 7 key factors that affect car depreciation

It is evident that a car doesn’t hold its showroom value for long. The moment you drive it off the lot, its price starts to drop, a process known as car depreciation. This drop isn’t random; it depends on factors such as how old the car is, how many kilometres it’s been driven, its overall condition and how popular that model is in the market.

Depreciation also ties directly to motor insurance through the Insured Declared Value (IDV), the amount your insurer will pay if your car is stolen or completely damaged. So whether you’re planning to sell your car, renew your car insurance policy, or calculate your ownership costs, understanding depreciation can help you make more informed financial choices.

Read on to see how these factors influence your car’s value and insurance premium.

7 Factors Influencing Car Depreciation

The following are the main factors that influence car depreciation:

1. Age of the Vehicle

Age is one of the key factors affecting car depreciation. As a vehicle gets older, its market value steadily declines. Cars that are more than 10 years old usually have lower resale value, as wear and tear, outdated technology and reduced efficiency make them less desirable to buyers. The only exceptions are classic, collectible or specialty models, which can sometimes appreciate in value due to their rarity or growing demand among enthusiasts.

2. Mileage and Odometer Reading

Mileage also plays a significant role in car depreciation. In general, the higher the mileage, the lower the car’s value. A vehicle that has been driven extensively is likely to show more wear on its engine, tyres and interiors, which brings down its resale price. On the other hand, cars that are driven less and well-maintained tend to retain their value longer, as they usually have less mechanical stress and appear in better condition overall.

3. Physical Wear and Tear

A car’s condition affects its resale value. Worn tyres or brakes, scratches, dents and faded paint can reduce its worth. In contrast, well-maintained cars serviced regularly at authorised centres and backed by proper service records depreciate more slowly. Vehicles with accident history or frequent repairs tend to lose value faster due to concerns about reliability.

4. Brand Value and Market Trends

Brand reputation and demand play a role in how much value a car retains. Models from manufacturers known for reliable after-sales support and manageable maintenance usually depreciate at a steadier pace. Market preference also matters. SUVs, for instance, often have relatively better resale value. Policy changes, like new emission rules or fuel regulations, can also influence how quickly a car loses its worth.

5. Number of Owners

Multi-owner vehicles usually lose their value faster, since continuous changes in ownership make it challenging to determine the maintenance history. Well-documented single-owner vehicles are generally more desirable in the second-hand market.

6. Fuel Type and Efficiency

Fuel type also affects how a car holds its value. Petrol cars generally retain their resale value better than diesel vehicles, which face stricter emission norms and higher registration costs in many states. Cars that are more fuel-efficient usually depreciate slower, as they remain cheaper to run. As electric and hybrid vehicles become more common, factors like government incentives and the availability of charging infrastructure will influence how their value changes over time.

7. Insurance and Depreciation Link

Depreciation has a direct effect on motor insurance, particularly affecting the Insured Declared Value (IDV), which determines the highest claim payable in the event of theft or complete loss. Vehicles that depreciate more have lower IDV, which influences insurance premiums and settlement claims.

Similarly, if you do not file any claims during the policy year, you can benefit from a No Claim Bonus, which can reduce your car insurance premiums. NCB in car insurance is a reward you get for safe driving for not making any claims during your policy period.

How to Calculate Car Depreciation According to IRDAI?

The standard rates of depreciation for the purpose of arriving at the Insured Declared Value (IDV) of a vehicle, as per Insurance Regulatory and Development Authority of India (IRDAI), are as follows:

Conclusion

Car depreciation is shaped by a combination of factors, such as age, mileage, wear and tear, brand reputation, ownership history, fuel type and changing economic or regulatory conditions. Together with IDV calculations in car insurance, these determine how much value a vehicle retains over its lifetime. Understanding these factors helps you make better financial decisions, whether selling your vehicle or renewing a car insurance policy.

Note to the Reader: This article is part of Mint's promotional consumer connect initiative and is independently created by the brand. Mint assumes no editorial responsibility for the content.