Did you know that as soon as you drive off the lot with your new car, its value depreciates by 10% or more? It further depreciates as you gain mileage and incur damages on it. It loses value even if it’s sitting in your garage for most of the year.
When you also consider the amount you spend on it for gas and maintenance, it’s no wonder many people view it as a liability. Some, though, insists it’s an asset.
Which is the truth? Is a car an asset or a liability?
Let’s find out below the definition of an asset and a liability to see where a car fits.
Is a Car an Asset?
No matter what you see online, remember that a car is an asset. An asset refers to any resource with an economic value. A car fits in that definition, along with your house, artwork, home goods, jewelry, and other personal assets. Cash is also an asset, as well as retirement funds and investments.
These things have a positive gain to your net worth, while a liability lowers your net worth.
A liability is anything owed to other entities as a result of previous transactions. Examples are student loans, mortgages, credit card debt, and other types of loans.
If you have a car loan, however, how does the car become an asset? Is a car an asset in the first place?
Let’s get this straight: the car is an asset, while the car loan is a liability. The actual vehicle gives you positive gain on your net worth; it has economic value that you can realize when you sell it.
The thing is that a car is a depreciating asset. It loses value as time goes by. Nevertheless, it’s still an asset by definition.
Whether selling it covers the amount you owe or not, it adds to your net worth. If there’s still any amount you owe afterward, that’s a liability.
So, unless you’re driving one a classic car that appreciates, you have a depreciating asset on your hands.
How Much is Your Car Worth?
With the semantics out of the way, let’s discuss the actual value of your car. Like we said earlier, a car’s value depreciates the moment it drives off the car dealer by 10 to 15%. It then continues to depreciate by 10 to 20% every year.
Keeping this in mind, you can work out an estimate of your car’s value. A car that’s one year old will have depreciated by 20 to 30% in value, while a five-year-old car will have already lost 60 to 70% of its value.
A lot of other factors come into play here, though. The make and model of your car are important, too. The actual state of your car upon selling it is also a huge factor.
If you keep up with its routine maintenance and keep it in good condition, you can get more out of it. Likewise, any upgrade you’ve done to the car can raise its value.
On the other hand, any accidents and repairs will reduce its worth. Obvious damages will hurt the car’s value the most.
How to Get a More Accurate Estimate
Google is your friend; browse the web for online calculators that determine your car’s value. You only need to put a few details, including the year, make, model, and mileage.
Of course, this is still only an estimate. If you’re shooting for accuracy, have a professional get a look at it. Be honest about everything the car has been through to receive the most accurate estimate you can get.
Not willing to go through that step? Then take a look at some local listings; you might spot some other owners selling a car like yours. This will give you an idea of how much your car is worth in your area.
Why Is It Important to Know About Your Assets?
We’ve now established that a car is an asset, so you can sell it if you so wish. But, why is this important to know in the first place?
This is so you can get a better understanding of your net worth. It’s a representation of your financial health. You can then formulate better short- and long-term goals.
Furthermore, it’s your assets that will save you should you need money in a pinch. You’ll first have to look through them to see if there’s something worth selling.
A car is one of the first things people sell to pay off debt, medical bills, and such. You may sell it on their own, take it to a dealership, or take out a car pawn loan. You can use it as collateral for other types of loans, as well.
These yield different results, even if you know the value of your car. It’s all about how they perceive your car’s worth.
When listing the car on your own, you connect straight to the buyer. There’s no middleman who needs to get a cut of the profits. You earn more money this way.
If you sell it to a dealership, you go home with less than the actual worth of your car. The advantage of this is that you don’t need to deal with bogus buyers, scammers, and tons of inquiries. It’s a simple transaction that doesn’t require much effort on your part.
The dealership also can’t offer you a high amount of money. Often, they clean and make repairs on the car before they sell at a fair price. They also have overhead costs, so you can’t fault them for offering less than what you would expect.
Take Care of Your Car; It’s an Asset!
Next time someone asks, “is a car an asset?” you now know what to answer. As long as you own it and it has economic value, it’s an asset. Investing in a car can be worth it or not depending on how you perceive value.
We also hope this guide gives you a better knowledge of your car, assets, and net worth If you want more tips to take better care of your vehicle, we’ve got you covered. Take a moment to check out more of our car repair guides right here!