What does depreciation refer to in relation to a vehicle?

Depreciation refers to the decrease in value of a vehicle over time, primarily due to factors like wear and tear, age, and market demand. This decline in value typically occurs as the vehicle experiences usage, with its worth diminishing after the initial purchase. Understanding depreciation is essential for vehicle owners because it affects the resale value; knowing how much a vehicle's value depreciates can aid in determining its worth when it comes time to sell or trade it in.

While vehicle maintenance costs are ongoing expenses, they do not directly impact the calculation of depreciation, which strictly relates to value reduction over time. Moreover, the concept of increasing value over time is contrary to the reality of vehicle depreciation. Resale value is influenced by the depreciation that has already occurred, but it is not the definition of depreciation itself. Thus, recognizing depreciation helps car owners and buyers make informed financial decisions related to their vehicles.