The loan to net worth ratio is a simple personal finance calculation that gives an idea of how much loan debt you have in comparison to your net worth. It measures how you leverage your loan debt in relation to your personal net worth — the lower the ratio the better.
Identify the total of your current loan balances, including mortgages, auto loans and personal loans. Find this information on your latest loan statements. For example, assume you have $20,000 left on a mortgage loan account and $10,000 for a personal loan for a total of $30,000 in loans.
Subtract total liabilities from total assets to determine total net worth. For instance, if you have $50,000 in assets and $35,000 in total debts (including all types of obligations) your net worth equals $15,000.
Divide the total loan balance by your personal net worth. In this example calculate $30,000 divided by $15,000 to get two, which represents $2 of loan debt to every dollar of net worth.
References
- Financial Literacy Now: Your Net Worth
- Mint; How Debt Impacts Your Net Worth; July 29, 2011
- Experian. "What Can a Personal Loan Be Used For?" Accessed Oct. 22, 2020.
- MyCreditUnion.gov. "Personal Loans: Secured vs. Unsecured." Accessed Oct. 22, 2020.
- Consumer Financial Protection Bureau. "What Is a Personal Line of Credit?" Accessed Oct. 22, 2020.
- Consumer Financial Protection Bureau. "How do I pay back my Personal Line of Credit?" Accessed Oct. 22, 2020.
- Metro Credit Union. "Secured vs. Unsecured Loans." Accessed Oct. 22, 2020.
- Marcus by Goldman Sachs. "Personal Loan Calculator." Accessed Oct. 22, 2020.
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