How fair value is worked out
The calculator works out the loan's monthly repayment from its balance, APR and repayments left. It then discounts those repayments at today's market rate. The result is what the loan is worth to a buyer who wants that market rate.
This follows the income approach in IFRS 13: future cash flows discounted at a current market rate. Both rates are APRs, turned into monthly rates as (1 + APR)^(1/12) − 1.
Worked example
A loan with £100,000 outstanding at 6% APR and 120 monthly repayments left pays £1,102.24 a month. At a market rate of 8%, those repayments are worth £91,962.54: a discount of £8,037.46, or 8.04% of the balance.
If market rates fell to 4%, the same loan would be worth £109,234.78, more than its balance.
Why value differs from balance
When rates rise after a loan is made, its fixed repayments are worth less than new loans', so it sells at a discount. When rates fall, it's worth more. The balance is what the borrower owes, not what a buyer would pay.
What this calculator assumes
Every repayment is made on time and in full, with no early repayment. Real valuations also allow for credit risk, prepayment and costs, usually through a higher discount rate. This is an estimate, not an accounting valuation.
Valuing a US note?
The country choices above the inputs open separate local pages. US notes quote a nominal note rate, and the page uses US terms such as required yield. Choosing United States opens that page and resets the inputs; amounts are not converted.
For a US note, use the US loan fair value calculator in US dollars.
Inputs for the UK loan value calculator
Balance outstanding
What the borrower still owes, in pounds.
Loan's APR
The APR the borrower pays on the loan.
Monthly payments left
How many repayments are still to come.
Market rate (discount rate)
The APR a lender would charge on a similar loan today.
CALCULATOR QUESTIONS
UK loan value calculator questions
How do you calculate the fair value of a loan?
Discount its remaining repayments to today at the current market rate for a similar loan. The total is the fair value.
Why is my loan worth less than its balance?
Its rate is below today's market rate, so a buyer would pay less to earn the market return.
What discount rate should I use?
The rate a lender would charge a similar borrower today, for a similar term and security.
Is fair value the same as the settlement figure?
No. The settlement figure is what the borrower pays to clear the loan. Fair value is what the loan is worth to an owner or buyer.