Liability
Money you owe to someone else, such as a mortgage, car loan, student loan or credit card balance.
What it means
A liability is a financial obligation: a debt or bill you are required to pay. Common personal liabilities include mortgages, auto loans, student loans, personal loans, credit card balances and unpaid medical bills or taxes.
Liabilities are subtracted from assets to get net worth. They differ in cost and risk. Some carry low interest and help buy something lasting, like a home, while high-interest revolving debt can grow quickly. The word also has a separate insurance meaning: legal responsibility for harm to others, which is what liability coverage pays for.
Example
Suppose you owe $180,000 on a mortgage, $15,000 on a car loan and $3,000 on a credit card. Your total liabilities are $198,000.
How it’s used
- Calculating net worth
- Measuring debt load when applying for credit
- Choosing which debts to pay off first
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.