Many people are unaware of what is salvage value of car and it is a great question for any auto enthusiast. It means the appraised sum of an asset which is worth towards the finishing of its valuable life. This is also recognized as residual value or scrap value and it is utilized for determining the yearly depreciation expense of assets. The worth of the asset gets recorded on the balance sheet of a company and the depreciation expense gets recorded on the income statement.
Method of Determining the Salvage Value of a Car
When you don’t know how to determine salvage value of a car, then you must know that it is calculated by determining your car’s average life before factoring in that car’s depreciation. When your car has got a five-year life and you have bought it at $20,000, then utilizing straight-line depreciation value of car, if the value of your car depreciates at $3000 yearly, then towards the finishing of its useful life, it would be worth $15000. It means the amount which you will get by taking out $15,000 from $20,000 from depreciation expense. And this is known as your car’s salvage value, which is $5,000.
When your vehicle gets damaged beyond repair, then the automobile insurance companies would declare it to be a total loss. When it happens with your vehicle, then you should not throw it. Though it might not turn out to be cost-effective for repairing the vehicle, yet it will retain some salvage value. Besides the scrap metal of the car’s value, the car might possess some serviceable portions which you can remove as well as sell as repair parts for your other vehicles. In some instances, the older cars having slight damages might be written off because the price of repairs would exceed the vehicle’s present value.
Varying Factors of Vehicle Salvage Value
You must keep this in mind that a vehicle’s salvage value will vary based on the state of your car besides make, manufacturing year, condition, and model of your car. The following are the factors on the method of calculating it:
- You must observe the retail as well as the wholesale value of another this kind of car utilizing some trustworthy resources.
- You must add these figures together besides dividing the sum by 2 for getting the present market value of the car.
- You can contact your insurance company when you wish to know the percentage of your car’s market value that it utilizes to deter salvage value. Though the percentage does differ, it is commonly 75% of the market value.
- The next step involves multiplying the present market value of your car that has been determined previously by 0.25 for finding out its salvage value.
- The last step is the outcome of the calculation will always turn lower compared to the car’s present market value. When the price of repairs does surpass this amount, then the car gets written off in the form of a loss.
Situations where Salvage Value of a Car is Calculated
Suppose a damaged car has got $8000 in repairs besides a trade-in value of nearly $3500, then the car insurance claims adjuster would declare it as a total loss. However, the car insurance company might use other factors too to determine the worth of a damaged car that includes databases of a third-party vendor. The proprietary software system of an insurance company aids the adjuster in calculating the price of repairs that include labor and parts. At times, the insured drivers think that these information systems fail to propose people with an ideal projection of costs.
In a situation, when a car can get repaired, then the owner wishes to repair it and most of the state laws need the car insurance companies to declare the car to be a total loss. When the deductible of the car insurance is $1000, then the insured does get a check for $2,500 only. The calculation accepts the actual cash value of the car less the deductible amount.
In the above instance, the insured preserved a higher than average deductible policy to save money on his car insurance rates.
Very soon, the Department of Motor Vehicles would issue a novice salvage title meant for the vehicle. Here, you can keep the vehicle, sell it or repair it to a salvage yard. Most probably, you will end up receiving an impressive price compared to what an insurance claim planned as the vehicle’s value.