Would you class this as a debt?!

lazy&indebt

Hello everyone!!

Basically, when I worked out how much debt I owe, I included the FULL outstanding amount left on my car (hire purchase) ie about another £4k in repayments and a £2.9k final balloon payment to keep the car, however the car should be worth more than £2.9k at the end of the term so I will more than likely sell the car, pay off the final payment and then use any spare to buy me a little run around. The thing i have been trying to figure out though is how much DEBT I am in with the car, would you say I owe,

A) £6.9k, the total amount repayable as of today to keep the car.

£4k, the amount I will repay before the balloon payment is due

C) £6.9k, minus about £4.5k (the market value of the car as of today - i.e how much i would owe peugeot if I was to sell the car and use the cash to pay off some of the settlement figure)

Basically trying to figure out whether you would offset the value of my car against how much I owe so i can say that I am in less debt than I previously thought!

Sea78

I would say 6.9k as that is what you owe, and something might prevent you selling the car. I always go for the exact figures, then it'll be goo ddone the line when you do sell it - you'll be able to knock the actual cash off amount owed - if that makes sense.

My overdraft is not always up to it's limit, but I include it in my debt at the limit amount as I know I might be at the limit - could put it less, but I want to have the *worse* case scenario as then I know exactly what's what with the finances.

Sea xx

lazy&indebt

That's a good point! I owe £2.7k on a card and £3.9k on a loan too and it's more of a kick up the bum if I say I owe £13.5 rather than £11.1k! Thank you for the advice

CosmoCat

I would say £6.9k as that is the total amount repayable on the car. things don't always go to plan and you may just have to keep the car. as that is the full amount of monies owing on the car, i would cater for it. anything done in the interim to pay it off would then come as a bonus

Everest

Sorry to say this...

As the International Accounting Standards Board says: "A liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits."

To be boring, but to take this accounting view of debt as the liability (as defined by the IASB) it is, then you would have to say that the £6.9k is a debt. It is what you owe (obligation) as part of your hire purchase of your car (past event), that will require you to pay money for to settle (outflow of economic resource). As £6.9k is that total settlement amount it is your liability/debt.

Certainly you have an asset (the car) which to some extent offsets the liability, that means that the 'net debt' is only the debt less whatever you could get for the car, but the debt itself is still the £6.9k.

You can stop yawning now.

lazy&indebt

Phew! Thank you for the advice!

And I actually understood what you meant too :-)