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Is my car an asset or a liability?

When calculating net worth, should you count your car as an asset? Yes, but only if you use a current -- and realistic -- depreciated value.

Is your car an asset? Should you include it in your net worth calculation? How do you know what it’s worth and how much it’s depreciating?

The short answer is yes, generally, your car is an asset. But it’s a different type of asset than other assets. Your car is a depreciating asset. Your car loses value the moment you drive it off the lot and continues to lose value as time goes on.

Should I include my car in my net worth calculation?

Your net worth equals your total liabilities subtracted from your total assets. Because your car is an asset, include it in your net worth calculation. If you have a car loan, include it as a liability in your net worth calculation. For help calculating your net worth, check out our Empower. It’s a free tool that’s one of the best ways to track your net worth and portfolio of investments.

Generally, your net worth calculation should include all your valuables, such as vehicles, real property, and personal property, like jewelry. To keep your net worth accurate, however, you must adjust the value of your vehicles, because they will decrease over time.

How do I know how much my car is worth?

One of the easiest ways for you to find out how much your car is worth is to go to Kelley Blue Book and enter the details about your car. You’ll have the option of choosing “for sale by owner” or “trade-in” value, which will yield different results. Your car is worth more money if you sell it privately than if you trade in your car at the dealership.

One reason is simply convenience. Many buyers find it easier to take their old cars to the dealership and trade them in than to take the time to sell the cars themselves — and they’re willing to take less money to do it.

A second reason that trade-ins are bought for less is that the dealership usually won’t sell the car the way that they receive it. The dealership will usually spend money on detailing the car and making small repairs.

Decide for yourself how you would sell your car (and be honest). Would you trade it in or take the time to sell it privately? Use this determination to choose which Blue Book value to add to your net worth.

How to calculate a car’s depreciated value without KBB

If you want to calculate the depreciation of your car without Kelley Blue Book, you can use the standard calculation that your car will depreciate roughly 10–20% every year, depending on the make and model. The following standards show how your car may depreciate.

  • Drive the car off the lot, it depreciates 10–15%
  • After one year, it will have depreciated a total of 20–30%
  • After three years, it will have depreciated a total of 40–50%
  • After five years, it will have depreciated a total of 60–70%

The ranges above are good measures to use if you’re determining your car’s value yourself, but remember that some models are easier to sell than others. However you calculate your car’s value, be realistic. The figure you should use in your net worth calculations should be the amount you could realistically get for the car, not the car’s maximum value under a perfect set of circumstances.

Summary

Your car is a unique type of asset because, unlike other assets, your car is a depreciating asset. Over time, your car will lose value, starting the moment you drive it off the lot. Even though your car depreciates, you should still include it in your net worth calculation — just make sure you include your car loan, if you have one, in your liabilities.

About the author

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Natalie Bacon

Natalie is a former corporate attorney and Certified Financial Planner. She has covered financial planning for Money Under 30, and has been featured in The Huffington Post and on Forbes.

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