There is truth to the old saying that “a car loses value the minute it is driven off the lot.” The expression refers to a phenomenon called auto depreciation, in which vehicles naturally lose value over time as the result of normal wear and tear, accidental damage, poor maintenance, or external economic pressures. Depreciation affects both new and used vehicles and can seriously impact the resale value of your car, making it harder to upgrade or trade it in the future.
What Causes Car Depreciation?
There are several factors that contribute to car depreciation, including mileage, ownership history, and even the color of your vehicle. The most common factors include vehicle age, make and model, and condition.
Vehicle Age
Typically, newer vehicles are more valuable than older ones. Most vehicles lose around 20% of their value within the first year of ownership. After five years, the average vehicle can lose up to 50% of its value.
Manufacturer
The specific manufacturer of your vehicle can impact the vehicle depreciation rate and how well it holds its value. A vehicle from a popular manufacturer with a reputation for reliability will hold its value for much longer than a cheap car made by a lower rated company.
Usage and Condition
A vehicle’s condition can also impact its auto depreciation rate. Vehicles that undergo extensive use in rough conditions, such as a work van, will depreciate faster than a vehicle that is rarely used, like a summer sports car. In addition, vehicles that have had extensive repairs or that have a lot of mileage will typically have a lower value.
Not every car depreciates at the same rate, and sometimes a specific make or model will retain its value far longer than expected. Car depreciation calculators consider a wide range of factors to accurately determine the value of a vehicle, which can help drivers make informed decisions on whether or not to spring for auto depreciation coverage.
What is Depreciation Protection?
Most auto insurance policies only cover the current value of a vehicle. After depreciation, however, many drivers may find themselves in a situation where they owe more on their car than it’s actually worth. This can make getting another vehicle difficult.
Depreciation protection is an auto insurance add-on designed to offset the financial impact of auto depreciation. When total loss of a vehicle occurs, there is an additional payout from the depreciation protection, separate from the regular policy payout. Typically, this payout is determined as the difference of the initial value of your vehicle minus the remaining amount of the loan balance when the total loss takes place.
Depreciation Protection vs. GAP Insurance
Depreciation protection covers the difference between the value of your car at the time the protection was purchased and the balance of your loan at the time of the loss. GAP insurance, on the other hand, covers the difference between the current value of the car at the time of the loss and your total remaining loan balance.
Depreciation Protection with Gravity Lending
When you bundle depreciation protection in with your auto refinance, Gravity Lending can help you get up to $10,000 in vehicle equity back in case of total loss of your vehicle. Whether your goal is to protect against auto depreciation or rest easy knowing that your loan investment won’t be entirely lost after a disaster, depreciation protection is an excellent solution. Reach out today to start an application or find out more.