One of the big benefits of buying property, rather than renting, is that you build equity.
Over time, as you make your mortgage payments, you build ownership in the property—be it a house, an apartment, or a condo. The value of that equity will vary a bit, depending on swings in the economy and the real estate market in your area. In general, though, your investment will retain its value with some reliability. It is considerably more difficult to retain vehicle equity. While it’s not uncommon to think of buying a car as the other big investment that most people make, next to buying property, these two investments are fundamentally different in how they retain value.
The Depreciation Problem: Why Vehicles Typically Don’t Retain Value Well
Real estate is often seen as an appreciating asset, or at very as a neutral asset. It isn’t uncommon to buy a house, live in it for a few years, and then turn around and sell it for a profit. In this kind of situation, a booming real estate market does most of the work. It also isn’t uncommon for people to buy houses, renovate and improve them, and then “flip” them for a profit. Still other property owners turn their properties into income-producing assets, by renting them out to long-term tenants or even short-term vacationers.
While some vehicles can be seen as appreciating assets, they are in the minority. A classic car or collector vehicle, for instance, may grow in value over time. However, those vehicles are typically viewed as collector’s items first and foremost, which means they aren’t being driven often. If you buy a new car with the intention of driving it for years to come, it will lose much of its value by the time you are ready to sell it or use it as a vehicle trade-in to buy a new car.
For this reason, most financial experts see vehicles as liabilities rather than assets. They require large upfront investments and possibly regular auto loan payments thereafter. Despite these payments, cars lose value over time and are unlikely ever to yield a profitable sale. Indeed, industry statistics indicate that the average vehicle loses 11 percent of its value the moment you drive it off the lot. Your car will continue to lose value as it accumulates mileage, as well as wear and tear.
Managing Depreciation to Retain Vehicle Equity
As your car depreciates in value, the value of your equity ownership of that vehicle diminishes as well. For this reason, vehicle owners don’t think of equity in the same way that homeowners do. Still, retaining your vehicle equity value is still important, especially if you plan on selling the vehicle or using it as a vehicle trade-in sooner rather than later. Even if you plan on driving the car to the 300,000-mile marker, you will still want to try to retain vehicle equity—if only because the steps to retain that equity are the same steps necessary to keep your car running well.
Indeed, the key to keeping the value of your car intact is routine maintenance. Follow servicing guidelines set by the manufacturer; get regular oil changes; replace or rotate tires as necessary; replace components such as spark plugs, timing belts, or brake pads as they wear out; don’t put off a trip to the dealership if you start hearing or feeling something irregular in your vehicle. Regular checkups, servicing, and repairs will maximize vehicle value and performance. Your car will be worth more and safer to drive. You will also likely achieve other gains, such as improved gas mileage, which will save you money over time.
Apply for Credit Union Auto Loans with Resource One Credit Union
At Resource One Credit Union, we are proud to offer a broad array of different auto loans. We do new auto loans, used auto loans, refinance car loans, college grad auto loans, first-time buyer auto loans, motorcycle auto loans, and additional auto loans (for vehicles like boats, RVs, ATVS, and even airplanes). We offer competitive rates and flexible terms, making it easy for you to find the financing that makes sense for your vehicle purchase.
If you are wondering how to get a credit union loan, just click here for more information about our auto loan options. You can apply for specific types of our credit union auto loans directly from that page. We’ll even prequalify you ahead of your shopping process, so that you can go to auto dealerships knowing that you have loan option in your back pocket. Contact us directly if you have any questions.