Extending lithium-ion battery lifetime is essential for mainstream uptake of electric vehicles. However, battery degradation is complex and involves coupling of underpinning electrochemical, thermal and mechanical processes, with behaviours varying based on chemistry, operating conditions and design. Derating is an attractive approach for extending lifetime due to ease of implementation, however, uncertainties remain around the optimal approach and their impacts. In this paper, we present a critical review of derating methods; dividing approaches into dynamic or static approaches based on whether the derated parameters changed with battery aging or not. Furthermore, we analyse and comment on approaches which are classified as being either heuristic or model-based. Analysis, comparison, and discussion around the derating sub-categories are presented towards highlighting underpinning insights of derating. Benefits and impacts of derating are quantified, and challenges with implementation are identified along with identification of research gaps, practical considerations and perspectives for future directions.