Depreciation can be defined as the decrease in the initial value of any asset based on various factors. Vehicles being machines with continuously moving parts, are prone to wear and tear over the due course of their operation. For the sake of easing out depreciation calculation for the purpose of IDV, the Insurance Regulatory and Development Authority of India also known as IRDAI has specified a table which gives the depreciation rate of car in accordance with its age. This table gives us a reference figure of the vehicle value according to its age. The value of vehicle drops by 5% in the first six months. For the time period from the end of these six months till the end of first year, the IDV of your car depreciates by 15%. If the age of your car is anywhere between 1 year to 2 years, its IDV depreciates by 20%. After 2 years, the value of your car will depreciate by an extra 10% for every year that passes with the vehicle losing 50% of its value at the end of 5 years of its life.
Though these guidelines from IRDAI have simplified IDV calculation for your vehicle, it must be noted that the vehicle valuation only helps you arrive at a base value of the vehicle when considering buying/selling a used car. The valuation of a vehicle in the used car market is dependent on many other factors some of which are listed below:
- Market perception of the vehicle: Cars from certain manufacturers like Ford currently have a poor value in the used car market since the manufacturer recently exited the country. Until then used Ford cars fetched a much better price. So value of a car is not only dependent on market perception of the brand, but also sometimes of that specific model.
- Service history: It can be observed that vehicles with elaborate and detailed service history fetch higher values in used car and bike market as compared to the vehicles which lack service history.
- Accident history: Value of a vehicle decreases drastically if it has undergone major accidents damaging the body frame. In many cases, vehicle owners try to keep these major accidents out of potential customer's sight. This can be easily found out by checking for major insurance claims registered.
- Mileage: It must be noted that vehicles driven below 200km per month are undesirable. This is due to the fact that your vehicle is a machine with moving parts which can develop issues if kept unused and idle. On the flip side, vehicles with excessive mileage are undesirable as well.
- General physical condition: Any vehicle in the used car and bike market must have all of its features and functions running without any faults. Any issue in even a couple of these features will affect the value of the vehicle.
- Number of previous owners: Last but not the least, the most important factor affecting the valuation of a vehicle in the used car market is the number of owners the vehicle has been with. This detail can be seen on the Registration Certificate (RC Book) of the vehicle. Needless to say, lesser the owners of a vehicle, better is its valuation.
