As soon as you drive a new car off the lot, its value drops. How much value it loses depends on the type of vehicle and how you use it, among other factors. Keep reading to learn more about the factors that influence depreciation and how you can get the most out of your purchase.
How quickly does your new car’s value depreciate?
Some experts estimate a vehicle’s value decreases by 10% after the first month of ownership, and by more than 20% after the first 12 months.1 Over the next four years, value depreciation slows down to approximately 10% annually.1 This means that your new vehicle could be worth as little as 40% of its original purchase price after only five years of ownership.
What factors influence depreciation?
One of the main factors that influences depreciation is mileage. On average, most drivers will put about 20,000 km on their car per year. If you’re driving more than that annually, you can expect your car’s value to depreciate faster.
The age of the car will also impact depreciation, as well as the level of maintenance. To hold your car’s value, it’s important to keep up regular maintenance like replacing the oil filter. If your car has been in an accident, that could also decrease the value.
Additionally, high demand vehicles will retain value better over time. For example, when fuel prices are high, hybrids and more efficient vehicles tend to hold their value better.
How can I get the most out of my car purchase?
Buying a car is a significant investment, so you want to preserve its value as much as possible. One way to do that is by adding a limited waiver of depreciation onto your auto insurance policy when you purchase a brand-new car.
A limited waiver of depreciation means that if you have a total loss claim for your vehicle, the insurance company will not deduct depreciation from your claim amount. The insurer will either give you the same amount you initially paid for the vehicle, the manufacturer’s list price for the vehicle or the cost to replace the vehicle with a similar vehicle with the same options/features.
A limited waiver of depreciation is only available if you are the first owner of the vehicle and must be added when you purchase or lease the car. Depending on your insurer’s policy, this coverage can last from 24 to 60 months after your purchase date. Your deductible will still apply with a limited waiver of depreciation.
If you’d like to learn more about adding a limited waiver of depreciation onto your auto insurance policy, call an OTIP broker at 1-800-267-6847. If you’d like to get a quote for car insurance, call 1-866-561-5559.
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