Is A Car An Asset Or Liability?
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One of the biggest conundrums in personal finance is the question, “is a car an asset?”.
This question has been asked around the personal finance community for years and there are a lot of mixed answers.
A lot of people consider their car an asset but others consider it a liability but for you, is your car an asset or liability?
As you can see, this question is not black or white, it sits in the grey area which makes it pretty confusing.
Well, in this post we will break down all aspects of owning a car to decide whether your car is an asset that counts towards your net worth or a liability…
Is A Car An Asset?
As I stated earlier, there is no clear definition or rule that answers the question “is a car considered an asset or a liability”.
To get a better understanding of what exactly is an asset and a liability let’s look at the definitions by Investopedia.
According to Investopedia, an asset is anything that is of value or resource of value that can be converted to cash and counts towards your net worth.
A liability on the other hand, according to Investopedia, is something that a person or company owes, which is usually a sum of money, think of debt.
So, looking at these two definitions, a car definitely seems like an asset rather than a liability.
However, there are a lot of people that define an asset as something that makes you money and a liability as something that takes money away from you.
So, is a vehicle an asset that adds to your net worth? Let’s dig deeper into this…
Best Tool To Use For Your Car
Before we continue, I want to quickly show you one tool you should definitely check out as a car owner.
I don’t have to tell you that owning a car is expensive and one of the most expensive aspects is car insurance!
Car insurance is an expense that sucks but unfortunately, you need it if you own a car.
However, you don’t have to be paying an arm and leg for car insurance.
Enter Gabi, Gabi is a free tool you can use to find cheaper car insurance.
You can get a free car insurance quote on Gabi and compare many different car insurance plans.
I highly recommend using Gabi to save money on car insurance! Plus you can save money on home insurance too! I mean it’s free so why not?!
Okay, now let’s get back to the question…
How Your Car Is An Asset
Now that we know an asset is something that can make you money or something that can be easily traded for money, depending on the definition of asset you use…
So, is a car considered an asset?
Well, if you use the traditional definition of what an asset is then yes a car is labeled as an asset and counts towards your net worth.
However, it’s not a true asset because the value of most cars decreases over time and that is why a car is considered to most people as a depreciating asset.
Some cars such as a Jeep Wrangler and Honda Civic hold their value much better than other cars so they are on the lower side of being a depreciating asset.
A car can be a true asset if the car is a collectible item that is in high demand which increases the value as time goes by.
However, there is no real way to tell which car will become a collectible and be worth more over the years but generally when there is less of a supply the car will be more valuable.
There is big money in buying and re-selling cars so in this way a car can definitely be an asset.
You can also use your car to make you money from doing things such as Uber, Doordash, Postmates, Instacart, etc…
Making money with your car will fit the other definition of what an asset it which is something that brings money in.
But…
Most people aren’t doing this, they just have one or two cars that they use for personal use, so is your car an asset when you just use it to get from point a to point b?
It is still considered as an asset in the standard definition of an asset and it counts towards your net worth but it’s considered a liability in the cashflow definition of what an asset is.
I like to look at owning a car as a depreciating asset that also has characteristics of a liability.
Here’s why…
How Your Car Is a Considered A Liability
Cars can actually be a big money pit and that’s why many people label them as a liability rather than an asset.
I mean think about it…
If you own a car, then you will have to pay for car insurance, fuel, maintenance/repairs, registration, car loan, etc…
Without a car, you won’t have these expenses but the same thing can be said about a house, so you can see how this question is in the grey area.
One of the biggest and most clear liabilities when it comes to owning a car is having a car loan, if you financed your car then your loan is definitely a liability.
So… the simple answer to this question is that your car is considered an asset (a deprecating one) and it consists of liabilities.
Now that we know a car is a depreciating asset let’s see what are the best types of cars to buy to avoid losing too much value…
What Is The Best Type Of Car To Buy?
Some cars depreciate much faster than others meaning that you will lose value rapidly if you purchase the wrong type of car.
Firstly, you should choose to purchase a car that is at least 3 to 4 years old and this is due to the fact that all cars lose most of their value in the first 3 to 4 years of their life.
So, before we get into the best types of cars to purchase it is best to buy a used car that is at least 3 to 4 years old.
Now, let’s list out the best vehicle models that hold their value the best:
- Jeep Wrangler
- Toyota Tacoma
- Honda Civic
- Toyota RAV-4
- Honda CR-V
- Subaru WRX
There are more cars that hold their value pretty well so before you purchase a vehicle ensure that it can hold its value over the years you own it and that it’s reliable.
Now let’s see how you can use your car to become an income-producing asset…
Using Your Car To Make You Money
Just because that your car is a depreciating asset doesn’t mean that you can’t use it to become a valuable asset that you can use to increase your net worth.
There are many ways that you can use your car to make some extra money in your free time!
Let’s check out some ways that you can use your car to make you some extra cash…
DoorDash
A great side hustle that you can do with your car is DoorDash.
With DoorDash you can work when you want and make some extra money delivering items to people.
Plus, you will get to keep 100% of the tips you make with DoorDash which is awesome!
You can work whenever you want with DoorDash so I highly recommend checking it out.
Postmates
Another platform that is similar to DoorDash that you can use to make money with your car is Postmates.
Postmates is a very popular platform that you can use to make money with your car in your free time.
Just like DoorDash, with Postmates you will get to keep 100% of your tips!
I highly recommend checking out Postmates if you want to make some extra money with your car.
Uber/Lyft
Another way to make your money with your car is to work for ridesharing platforms such as Uber or Lyft.
Making money with ridesharing platforms definitely requires more work than simply delivering items but it is still a good way to make money.
If you want to make some extra money with your car then check out Uber or Lyft.
Turo
A very easy way to make money with your car is to use Turo.
Turo is a platform that you can use to rent out your car when you are not using it and you can make $1,000’s doing this!
It’s a very simple way to make money with your car, and I highly recommend checking out Turo if you are looking for an easy way to make some extra money.
Okay, I don’t want to turn this article into a list of ways to make money with a car but I just wanted to show you that you can use your car as an income-producing asset.
FAQ
Here are some frequently asked questions related to if a car is considered an asset or liability…
A car is known as a tangible asset that depreciates. Cars hold a value that can be sold for cash but the value decreases over time.
A financed car is an asset but the car loan is a liability. To get the true value of a financed car you will have to deduct the car loan amount from the value of the car.
Yes, a car and other tangible assets such as other properties, jewelry, artwork, boats, etc… can all be included as assets on a mortgage application.
Conclusion
As you can see, not everyone labels their car as an asset, some label it as a liability but to simply answer the questions “is a car an asset?” or “is a vehicle an asset?”
Yes, a car is an asset that counts to your net worth, although it is a depreciating asset it does hold value and can be traded for cash. However, a vehicle does consist of liabilities so keep this in mind.
Even though a car is labeled as an asset by definition, it is less of an asset than other things you own such as a house.
I see a car being more of a personal asset than a financial asset. It will help you to save time so you can focus on other things in your life.
If you liked this post I recommend checking out my posts on How To Save Money Fast On A Low Income and Tired Of Being Poor? Here’s What To Do!
How do you view owning a car? Is a vehicle an asset? Is a car an asset or a liability in your eyes? Let me know in the comments below!
Nice treatment. It points out the ambiguity in a lot of personal finance terminology. I was lucky for most of my career I was provided a free company car, free gasoline, free insurance and free maintenance with unlimited personal use. That was nice because I drove up to 36,000 miles a year. I traveled a lot and the closest real airport was two hours away. One thing that changed in retirement was the need to buy my own cars and all the expenses that go with them. I always felt that the free car added several thousand a year to my income, most of it tax free. It also kept me from buying more car than I needed. There is no peer pressure to drive a fancier car when everyone knows you are in a company owned car.
Thanks for reading and commenting Stevark! Yes, there is a lot of ambiguity in personal finance and this is just one example of how there are different opinions on this one question. Being provided with a free company car with all the expenses covered is lucky for sure and definitely helps to save money!
nice article. Keep posting!
Thank you Jessica!