How a note is valued
The calculator works out the monthly payment from the balance, note rate and payments left. It then discounts each payment at the buyer's required yield, divided by 12. The total is the price that gives the buyer that yield.
This is the income approach to fair value (ASC 820 under US GAAP): expected cash flows discounted at a market rate.
Worked example
A note with $50,000 unpaid at 7% and 120 payments left pays $580.54 a month. A buyer wanting a 9% yield would pay $45,829.00: a discount of $4,171.00, or 8.34% of the balance.
If the buyer only needed 5%, the note would be worth $54,734.32.
Why notes sell at a discount
Buyers of private notes want more than the note rate for the risk and effort of collecting, so most notes sell below their balance. A strong payment history and a bigger down payment from the borrower can narrow the discount.
What this calculator assumes
Equal monthly payments made on time until the end, with no balloon or prepayment. Adjust the yield for risk; this is an estimate, not an appraisal.
Valuing a UK loan?
The country choices above the inputs open separate local pages. UK loans quote an APR that already includes compounding. Choosing United Kingdom opens that page and resets the inputs; amounts are not converted.
For a UK loan, use the UK loan value calculator in pounds.
Inputs for the US loan fair value calculator
Unpaid principal balance
What the borrower still owes on the note, in US dollars.
Note rate
The yearly rate written in the note.
Monthly payments left
How many payments are still to come.
Market rate (required yield)
The yearly yield a buyer wants, quoted like the note rate.
CALCULATOR QUESTIONS
US loan fair value calculator questions
How do you value a promissory note?
Discount each remaining payment at the yield a buyer requires and add them up. That's the most a buyer would pay to earn that yield.
Why would I sell a note for less than its balance?
To get cash now. The buyer takes the payments, and the discount is their return.
What yield do note buyers want?
It depends on the borrower, security and term. Buyers usually want more than the note rate.
Does a balloon change the value?
Yes. This calculator assumes equal payments to the end; a balloon adds a large final payment to discount.