As a result of such situation, you have reduced your net worth. Before selling the car, your net worth is $12,000-$7,000=$5,000. After selling the car and paying off the loan, it’s $2,000. As you can see it reduced $3,000. Hope this answers the question. Have a nice day.
The net worth of someone is defined as the difference of the assets you own and the debt you owe. The value of the car is $12000 and you sell it for $9000. The amount of money you owe on the care is $7000 and this is considered a debt. Therefore the total net worth is:
The reason for this, is that you have de-valued the car from $12000 to $9000. This will decrease your net worth by:
So instead of your net worh being $5000 it is now $2000.
