Do you want to calculate your net worth? Are you thinking of investing in a new car?
Statista reported that 78% of respondents say that a car is permanently available in their household. Even though there are millions of car owners in the US, there's still a split opinion on whether a car is an asset or liability.
We researched the topic to know if your car can be considered an asset and when it is a liability. In effect, you can determine your net worth more accurately.
Read until the end and avoid missing essential tips on making your car an asset.
Is Your Car an Asset?
Yes, your vehicle is an asset, but it’s depreciating. It helps you get from one destination to another, and you can earn money by selling it.
So what is a depreciating asset?
Despite losing its value over time, your car still retains some value.
Several factors can diminish its worth, including mileage and overall condition.
In terms of mileage, the more distance your vehicle has traveled, the less its value is. Usually, for every 20,000 miles, your car loses 20% of its original price.
You also need to consider dents and scratches on your car since they lessen your vehicle’s value.
A car also loses its worth because automotive companies consistently release new models. As a result, consumers associate the latest cars to be the better ones.
Is Your Car a Liability?
There’s confusion since your car may also be considered a liability, even though it can also be an asset.
When is your car a liability?
Your car becomes a liability when you realize the costs that come with it. You’ll have to pay for fuel, maintenance, repairs, loan, insurance, and registration.
The American Automobile Association reported that owning a car costs almost $10,000 annually. But if you own a new vehicle, prepare to spend nearly $40,000.
Also, if you financed your car, you need to pay the monthly installment, which ranges from $391 to $554. Hence, you need to allocate a part of your income to pay off this debt.
Should Your Car Be Included in Your Net Worth Calculation?
Your total assets minus liabilities constitute your net worth. If you want to calculate your net worth, you need to include your car since it’s a depreciating asset.
However, if you have a car loan, you need to add it to your liabilities. Your car affects your net worth, especially if you finance your vehicle. That’s why you can treat your vehicle as both an asset and a liability.
Take note that you need to adjust your vehicle’s worth since it loses value over time.
When Is Your Car Considered an Asset?
In this section, you’ll discover when your car is an asset depending on different situations.
Is your car an asset in divorce?
During a divorce proceeding, your car is treated as an asset. But states have different rules in the distribution of assets.
If you live in Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, all properties bought after marriage and before separation will be divided evenly.
But if you reside in other states, the judge will equitably split the property and not necessarily 50-50.
Is your car an asset for a mortgage?
Banks include cars in the list of physical assets for a mortgage. Some examples of physical assets are pieces of jewelry, homes, boats, RVs—anything tangible that you can sell for money.
Is a financed car an asset?
You can consider a financed car as an asset, but only if its fair market value is more than your loan. For example, if your vehicle is worth $20,000 and you owe $10,000 on it, then it’s worth $10,000 as an asset.
What Is the Best Type of Car You Can Buy?
If you want to maximize your car as an asset, then you can choose a vehicle that’s 3 to 4 years old. This isn’t a counterproductive strategy since most cars greatly depreciate after 4 years.
Although most vehicles quickly lose their worth, check out the list below for cars with the slowest depreciation rate.
- Jeep Wrangler
- Nissan Frontier
- GMC Canyon
- Toyota RAV-4
- Toyota 4Runner
How Much Should You Spend on a Car?
Limiting your auto payments to 10 to 15% of your monthly income is recommended. This way, you won’t spend too much on a depreciating asset.
It’s fun to improve your vehicle’s interior to exterior, but remember that you also need to prepare for other related expenses, such as maintenance, repair, insurance, and registration.
How Can You Determine Your Car’s Value?
You can use online calculators from various sites to check your car’s value.
Some websites you might want to check:
You can input your car’s model, Vehicle Identification Number (VIN), or plate number to appraise your vehicle online.
What Are the Benefits of Owning a Car?
There are several reasons why millions of people own a vehicle.
- It ensures safety, most especially in a pandemic when you need to isolate yourself from crowds.
- You can gain independence since you can travel almost anywhere you want.
- You can save time because you can avoid congested roads when going to the office or school.
- It’s best for long drives and road trips to ease your mind.
- You don’t have to share space, and as a result, you can have privacy, which is rare in public transportation.
How to Use Your Car to Make Money?
You can make your car an asset by making money off of it. You can take advantage of a depreciating asset to earn extra income. Here are some options:
You can apply as an Uber driver and use your car for this ride-sharing platform.
Simply go to their website, then sign up to become a driver. You only need to input your name, email address, password, phone number, and location.
After that, Uber will send further instructions and update you regarding the status of your application.
You can also work at DoorDash, where you’ll be tasked to deliver items to people. Some drivers claim that they can earn $800 on an eight-hour shift.
You can apply as a Dasher by visiting the website, then signing up using your email address, phone number, and zip code.
If you want a passive income, you can rent out your car via the Turo platform. Some claim that they earn $1,000 by doing this.
You can go to the website, then click “Become a host” to proceed with the application process.
Is It Worth It to Own a Car?
It depends on you whether it’s worth it to have a vehicle. If your liabilities outweigh your assets, it might not be a good idea to buy a car. But if you can use your wheels to generate extra income, owning a car might be the right decision.