If you were ever in a car accident, you know how devastating it can be when your vehicle is damaged beyond repair. In those instances, car insurance companies usually don’t give any compensation and you’re looking at a complete loss. But that may not always be the case.
If you have been in a big wreck or your car has gotten damaged during a natural disaster, you may still be able to get some compensation through the car parts that weren’t destroyed. This is known as salvage value.
Unfortunately, accidents happen every day and they happen to both the exterior and interior of vehicles, but these accidents don’t have to be a total loss. The salvage value of a car depends on a variety of factors, and in this post, we are going to dive deep into each of them.
Salvage Value: What It Means and How to Calculate Salvage Value of Car Scraps
When talking about motor vehicles, salvage value can have multiple meanings, but it mostly refers to cars that have been given salvage titles after damage or theft. This means these vehicles have been in a major accident that caused them to be declared a complete loss by the car insurance company since their repair cost more than their value.
A lot of the time, these vehicles are fixed and re-sold, or in other cases, they are taken to scrap yards where the parts are sold for scraps. And for many people wondering what to do with a damaged car that’s been deemed irreparable, this is the perfect answer.
Deciding on calculating the salvage value for your car can be a smart decision if your want to get the most bang for your buck. While handing your damaged vehicle over to a salvage yard could be a good and hassle-free option for people who only have scraps left of their vehicle, this won’t bring you as much money as repairing and re-selling it will. And keep in mind that scrap prices can often vary.
How to calculate salvage value of car scraps
It’s not hard to calculate salvage value of car parts or an entire car because there is a simple salvage value formula you can use. However, it’s important to remember that the different issues your car has as well as its wear and tear will factor in the price.
There is a much bigger difference in the salvage value between those who were in major accidents and those who have only gotten into regular fender benders. Logically, bigger accidents lower the salvage value of a vehicle drastically.
If a car hasn’t been repaired after being in a major incident, its salvage value will be worth around 10%-50% of an equivalently used car’s value. On the other hand, if you’ve invested in repairs, you still won’t be able to get the same value as you would for that same pristine model, but you would probably get around 70% of its value. In addition to the damage, the value also depends on the state you live in, and the year, make, and model of your car.
Calculating the salvage value of a vehicle is very easy if you use the following formula:
S = P – (I * Y)
To explain it more clearly:
Salvage value = Original price – (Depreciation * Number of years)
Knowing the original cost of your vehicle is fairly important, as the amount of money you spent when buying the vehicle at retail price is the highest worth that your car can have. The salvage value of your car will only be a percentage of what the market value of the car is.
Depreciation represents the devaluation that occurred while the car was being used and during the accident that caused the damage to the vehicle.
It is calculated in monetary terms and there are two different types:
Straight-line depreciation, which is a fixed amount of depreciation.
Diminishing balance method of depreciation, where you follow a straight line but the amount decreases based on the amount of damage.
The number of years the vehicle has been in use is important to know because a lot of wear and tear can happen over time. And this is why the output will decrease as the years go by. If you’ve gotten to the point of wanting to sell your vehicle for its salvage value, you can talk to salvage companies that will help you determine the price you can get for the scrap parts.
What is ACV?
The worth of your car in its current condition is known as its actual cash value, or ACV for short. In simpler terms, the ACV shows you the amount of money you can expect if you decide to sell your car. The value for depreciation is included in the ACV.
The actual cash value of a vehicle is important because if the damage you cause to your car exceeds a certain percentage of the ACV, it will be declared a complete loss by the insurance company. In that case, they will reimburse you for your car’s actual cash value minus the deductible.
How to calculate the ACV of your vehicle
When it comes to calculating the ACV of your vehicle, that will be done by insurance adjusters after you’ve been in a crash. It’s important to note that most insurance companies use third-party vendors to calculate this value, as they are the ones with all the relevant data.
The data on the wrecked vehicle and all of the damage is loaded into a system and then software uses this data to calculate the actual cash value.
The ACV will depend on multiple factors:
The year, make, and model of your car
The mileage on your car
Any wear and tear your car has or had prior to the accident
Your accident history with this car
If you don’t agree with the insurance company’s estimate, you can negotiate. However, to get a higher payout, you need to show evidence that your car has a higher ACV.
How Car Insurance Companies Determine Salvage Value
Now that we went through how to find salvage value, we should also talk about how car insurance companies calculate salvage value. Below are listed all the steps they go through.
Determining the vehicle’s features
The features that are looked at are the model, make, year, and mileage of the car at the time when the accident happened. If there was any additional equipment or trim, that is also factored in. If you don’t already know all of this information, you can find it either on your title or in the instruction manual.
Calculating the ACV
There are multiple websites that car insurance companies typically use to calculate a vehicle’s actual cash value and you can use them too. This includes websites such as NADA and the Kelly Blue Book. To calculate the ACV, the insurance company will put in the retail value and the dealer value of your vehicle.
From there, they will add these two sums up and then divide them in half to reach the ACV. If you’re checking the ACV yourself, it’s best to do it on multiple websites just to be sure. We recommend you do this to be sure you’re getting a good deal with your insurance company.
Determining the salvage value
We already talked about the formula you can use to calculate your car’s salvage value, and while that is the standard formula, most insurance companies will use a slightly different one. They calculate this value based on past salvaged vehicle auctions and how much it will cost to dispose of your vehicle.
Once they calculate your salvage value, the insurance company will subtract it from the ACV to get the amount of money you will receive.
Salvage value vs. depreciated value
Finally, it’s important to note that the trade-in value of your car after being fixed by one of your local repair shops and its salvage value will be different. So before you salvage your junk car, you need to know the difference.
Let’s take a look at how the IRS would calculate this. If a vehicle was purchased for $30,000 and had a five-year lifespan, and you take the straight-line reduction method into account, the value of the car would be reduced by $5,000 per usage year due to annual depreciation.
For tax purposes, the salvage value of this car would be approximately $5,000 at the end of its useful life. But this isn’t how things work with the salvage value as this value is calculated by the sum total of all the vehicle’s parts.
Depending on the state of the body of the salvage vehicle and its overall condition and inner working parts, you as the car owner might earn less or more than the assumed salvage value.
But if the car is a complete loss and you can’t expect good salvage car prices, you can decide to sell it to the insurance company. Once you sign your car’s title over to the company, they will most likely sell it for parts.
The Bottom Line
While car accidents aren’t something we like to talk about, the sad truth is that they happen frequently, and you can never know if and when one will happen to you. So instead of feeling lost and helpless in the case of a wreck, make sure to know your options and be prepared.
Knowing what salvage value is and how to calculate the salvage value of your car can help you get the most out of a bad situation. All of this information you read about here might be useful one day, so take what you learned and stay safe on the road.