Is a Car Loan a Liability or Asset?

Is a car loan a liability or asset? As debt, it goes into the liability category of your financial statement.
Written by Bellina Gaskey
Reviewed by Jessica Barrett
While a car is considered a financial asset, a car loan is a liability because it represents money you owe. As you pay off your loan and build equity, your financed car eventually becomes an asset.
Taking out a
car loan
can be a serious financial commitment, but the end reward—owning a car—is well worth the effort.
While the car is “yours” right from the beginning, the lender technically has claim to it as collateral and thus gets a say in how you maintain it for the duration of the loan. 
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Assets vs. liabilities

You’re probably familiar with the concepts of assets and liabilities, but let’s review them just to be clear.
  • Assets represent money that you own
  • Liabilities represent money that you owe


Your regular income is a financial asset, as well as stocks, bonds, and things like an engagement ring, a precious heirloom, or land. 
Some assets are easier to convert to cash than others, making them more liquid. 
For instance, if your engagement ring takes a while to sell or even loses value when you sell it, it’s relatively illiquid. On the other hand, stocks can be sold instantaneously for their listed value, making them liquid.
This doesn’t mean that illiquid assets aren’t an important contribution to your financial portfolio.


Any debt you have is a liability, including credit card debt, mortgages, and IOUs. 
Financial experts recommend an asset:liability ratio of between 3:1 and 5:1 as a long-term goal, meaning that for every $1 in liabilities, you have $3-5 in assets.  
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Is a car loan an asset?

Car loans are liabilities, not assets. Even though you initially receive the loan amount to purchase your car, you owe the entirety of the loan (plus more in interest!) back to the lender.
But as you pay off your loan, the amount of liability in your account gradually decreases and you’ll build equity. You will have positive equity once you owe less than your car is worth.
Key Takeaway Any loan—whether a car loan, mortgage, or personal loan—is a liability because it represents money that you owe.

Is a car an asset?

Cars themselves are assets. That said, cars depreciate (lose value) over time, so a 10-year-old car will contribute less to your net worth than a brand-new one at market value. 
It’s important to make sure you keep your car insured and keep up with a
basic car maintenance schedule
to keep its value as high as possible.
Key Takeaway Your car is an asset, but a financed car will add more liability to your account overall until you have positive equity.

How to calculate how much your car is worth

Since your car steadily depreciates, it’s important to calculate its current value if you’re updating your financial reports or getting ready to sell it.  
The easiest way to calculate your car’s current value is to use an online calculator, such as the ones provided by Edmunds or Kelly Blue Book (KBB).
If you’re evaluating a used car, look to NADA, the National Automobile Dealers Association.

How to estimate your car’s value

While using an online calculator will give you the most accurate value, you can get a rough estimate on your own. You’ll need to take your car’s initial value and subtract its total depreciation
Car depreciation happens quickly—new cars lose as much as 20-30% of their value as soon as they’re driven off the dealership lot. From there, different makes and models depreciate at different rates each year. A quick online search should give you the depreciation rate for your vehicle.
In general, you can assume your car holds less value if it:
  • Has higher mileage
  • Has had more than one owner
  • Shows signs of wear and tear (interior or exterior)
  • Has ongoing maintenance issues
  • Has outdated technology or special features 
Pro Tip If you have a luxury vehicle, don’t fall into the trap of assuming your car depreciates more slowly. They tend to lose value more quickly than others.

Protect your asset with the right car insurance

While you’re financing your car, most lenders will require you to purchase
auto insurance, which can be more expensive than a basic policy.
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