1. What is Loan-to-Value (LTV) Ratio?

The Loan-to-Value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. For auto loans, it compares the amount borrowed to the actual value of the vehicle being purchased.

2. How Does the Calculator Work?

The calculator uses the LTV formula:

Where:

• Loan Amount — The amount being borrowed for the vehicle
• Vehicle Value — The actual value or purchase price of the vehicle

Explanation: The LTV ratio shows what percentage of the vehicle's value is being financed. A lower LTV means less risk for the lender.

3. Importance of LTV in Auto Loans

Details: LTV is crucial in auto financing because it affects loan approval, interest rates, and whether the lender requires gap insurance. Most lenders prefer LTV ratios below 80-90% for the best rates.

4. Using the Calculator

Tips: Enter the loan amount and vehicle value in dollars. Both values must be positive numbers. The calculator will compute the LTV percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is a good LTV ratio for an auto loan?
A: Generally, an LTV below 80% is considered good, while above 100% means you're financing more than the vehicle's value (negative equity).

Q2: How does LTV affect my interest rate?
A: Lower LTV ratios typically qualify for better interest rates as they represent less risk to the lender.

Q3: What if my LTV is over 100%?
A: An LTV over 100% means you owe more than the vehicle's worth. Lenders may require gap insurance in this case.

Q4: Does down payment affect LTV?
A: Yes, a larger down payment reduces the loan amount, which lowers your LTV ratio.

Q5: How is vehicle value determined?
A: Lenders typically use the lower of the purchase price or the vehicle's actual cash value (ACV) from valuation guides like Kelley Blue Book.