Depreciation Calculator

How to use the depreciation calculator

1. Fill in the fields — they start with a worked example.
2. Read the answer, and the arithmetic shown beneath it.
3. Copy the results, or adjust the inputs to compare scenarios.

About this tool

Depreciation is the cost of owning something that wears out, and for most vehicles it is larger than fuel, insurance and servicing combined. It is invisible because nobody sends a bill for it — the loss appears only when you sell.

Two methods are offered because they describe different things. Straight-line spreads the fall evenly across the life of the asset and is what accounts usually use, since it is simple and predictable. Declining balance takes a fixed percentage of whatever the asset is currently worth, so the loss is steepest at the start and flattens later. For cars the second is far closer to reality: a new car can shed a fifth of its value in the first year and much less in the fifth.

That shape is the practical argument for buying a car two or three years old. The first owner has paid the steep part of the curve, and the car is otherwise much the same. It is also why a long finance term and a fast-depreciating car combine badly, with the balance owed sitting above the resale value for years.

The salvage or residual value matters more than it looks. Straight-line depreciation writes the asset down to that figure and no further, so setting it realistically is what keeps the projection honest.

Common uses

• Estimating what a car will be worth when a finance agreement ends.
• Comparing straight-line and declining balance for the same asset.
• Working out the annual cost of ownership for a budget.

Frequently asked questions

How fast does a new car depreciate?

Commonly fifteen to twenty per cent in the first year and around ten to fifteen per cent a year after that, which is why a declining balance projection fits cars better than a straight line.

What is the difference between straight-line and declining balance?

Straight-line removes the same amount every year until the salvage value is reached. Declining balance removes a fixed percentage of the current value, so the early losses are much larger.

What should I use as the salvage value?

The realistic resale or scrap figure at the end of the period. Setting it too high understates the loss and makes the whole projection optimistic.