What Is Book Value of a Vehicle and How to Calculate It

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Knowing the real value of your car will be important as it affects the real cost of ownership. While the technical terms that dealers and car insurers use can get really complicated, the underlying concepts are not that hard to understand. A central concept is that of the 'book value' of a car.

To understand the book value and how to calculate it, consider the following example. Suppose you buy a truck today for $35,000. When you go to insure the truck, the insurer will assess its value at, or near, $35,000. The insurance premiums you pay will be designed to replace a $35,000 truck in case it is completely wrecked in a collision.

Suppose, however, that you bought the car used, five years since the car was brand new. Your purchasing price was $20,000. When you go to insure the car, would you be happy paying insurance premiums for a $35,000 car? No, you would be looking to pay lower premiums, in line with the lower resale value of the used truck. This example illustrates that the book value of the truck has fallen in the intervening five years, and so, you naturally expect to pay lower premiums.

The book value of a car is simply its current price in the market, that is, the original price, less depreciation.

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