How Loans Affect Your Net Worth – A Practical Guide for Indian Middle-Class

Loans are neither good nor bad. They simply affect your net worth depending on:

  • interest rate
  • loan duration
  • asset value (appreciating/depreciating)
  • your repayment capability

This guide explains loan impact for everyday Indians earning ₹0–30 lakh/year.

⭐ What Happens When You Take a Loan?

Loan adds liability to your balance sheet.

If you take a ₹10 lakh loan:

  • Liability = +₹10 lakh
  • Cash = +₹10 lakh (or you get an asset)

Over time you pay:

  • EMI
  • Interest
  • Principal

⭐ EMI Formula (Used Everywhere)

EMI = P × [r(1+r)^n] / [(1+r)^n - 1]

Where:

  • P = principal
  • r = monthly interest rate
  • n = tenure in months

High interest + long tenure → heavy net worth damage.

⭐ Loans That Decrease Net Worth

❌ Car Loan

Cars depreciate 10–15% every year.

If you buy a 10 lakh car:

  • After 5 years value ≈ 5–6 lakh
  • But you pay 12–13 lakh in total (loan + interest)

Net worth impact is negative.

❌ Personal Loan

Interest rate 12–18%.

No asset created → only liability.

Worst loan type for net worth.

❌ Credit Card Loan

36–48% annual interest.

Instant net worth destruction.

⭐ Loans That May Increase Net Worth

✔ Home Loan

A house can appreciate 5–8% yearly depending on location.

If appreciation rate > loan interest → positive net worth growth.

But if appreciation is slow → negative.

✔ Education Loan

Indirect benefit: increases future income.

This boosts long-term net worth.

⭐ How CheckYourNetWorth.in Calculates Loan Impact

We calculate:

  1. EMI payments - Each EMI reduces your cash flow.
  2. Outstanding loan - Each month, loan balance decreases.
  3. Asset appreciation (for home loan) - House value grows using (1+CAGR)^(1/12)
  4. Asset depreciation (for car loan) - Car value reduces at 10%/year or whatever rate you enter
  5. Net worth change - Net Worth = Asset Value - Loan Balance

All this is shown month-by-month.

⭐ Example: Car Loan Impact

  • Car price: ₹10 lakh
  • Loan: ₹8 lakh
  • Interest: 9%
  • Tenure: 5 years
  • Depreciation: 12%/year

Result after 5 years:

  • Car value ≈ ₹5.5 lakh
  • Loan repaid ≈ ₹9.5 lakh

Net worth negative by ~₹4 lakh.

⭐ Example: Home Loan Impact

  • House price: ₹40 lakh
  • Loan: ₹30 lakh
  • Interest: 8%
  • Tenure: 20 years
  • Appreciation: 6%/year

After 20 years:

  • House value ≈ ₹1.28 crore
  • Loan paid = ~₹30 lakh
  • Total EMI paid ≈ ₹60 lakh

Net worth may be +₹70–80 lakh depending on market.

⭐ Should You Avoid Loans?

No. Loans are tools.

Use them wisely:

  • ✔ Home loan = good for long term
  • ✔ Car loan = OK if unavoidable
  • ✔ Personal loan = only for emergencies
  • ✔ Credit loan = avoid always

⭐ See Your Loan Impact on CheckYourNetWorth.in

Our simulator lets you:

  • add multiple loans
  • track loan repayment
  • track asset value
  • see net worth impact
  • combine loans with SIPs, lump sums, withdrawals

No other calculator in India gives such detailed projections.

Final Thoughts

Loans affect your net worth deeply.

Some loans help you grow.

Some loans drag you down for years.

Use CheckYourNetWorth.in to simulate your loans and plan a financially strong future.