Net Worth

Full definition

Net worth = total assets - total liabilities. Assets include: checking and savings account balances, retirement accounts (401k, IRA), investment accounts, real estate equity (home value minus mortgage balance), vehicles, and other valuable property. Liabilities include: mortgage balance, auto loans, student loans, credit card balances, personal loan balances, and any other debts. Net worth vs income for lending purposes: Most personal loan underwriting is income-and-credit-score based. Net worth is rarely collected or considered by algorithmic underwriting at online lenders. However, at banks and credit unions with manual underwriting (especially for large loans of $50,000+), loan officers consider assets as evidence of financial stability and the ability to cover payments if income temporarily stops. How to calculate your net worth: List all assets with current market values. List all debts with current balances. Subtract total debts from total assets. A positive net worth means assets exceed debts. A negative net worth (more debt than assets) is common for young borrowers with student loans and little equity. Why net worth matters beyond lending: Net worth is the most comprehensive measure of financial health. A person earning $100,000/year with $300,000 in debt has lower financial security than someone earning $60,000 with $0 in debt. Building net worth - through debt repayment, savings, and investment - is the long-term financial goal that personal loans can either serve (by funding investments or debt consolidation that improves net worth) or undermine (by funding consumption that does not increase assets). Impact of a personal loan on net worth: A personal loan used for consumption (vacation, entertainment) temporarily reduces net worth (you now have a liability without a corresponding asset). A personal loan used to fund education or a business may increase future earning power and ultimately net worth.

• Gross Income
• Net Income
• Debt-to-income ratio (DTI)
• Creditworthiness