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

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 vehicle 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 market value of the vehicle

Explanation: The LTV ratio is expressed as a percentage. A higher LTV means more money is being borrowed relative to the vehicle's value.

3. Importance of LTV Calculation

Details: Lenders use LTV to assess risk. Lower LTV ratios generally mean better loan terms and interest rates. Most lenders prefer LTV ratios below 80% for auto loans.

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 a car loan?
A: Typically, lenders prefer LTV ratios of 80% or less. Some may go up to 120% for new cars with additional products rolled into the loan.

Q2: How does LTV affect my loan terms?
A: Lower LTV ratios often qualify for better interest rates and terms since they represent less risk to the lender.

Q3: Can LTV be over 100%?
A: Yes, if you're borrowing more than the vehicle's value. This might happen with extended warranties, taxes, or other add-ons included in the loan.

Q4: How is vehicle value determined?
A: Lenders typically use the lesser of the purchase price or current market value (from sources like Kelley Blue Book or NADA guides).

Q5: Does LTV affect my down payment?
A: Yes, a larger down payment reduces the LTV ratio. For example, a 20% down payment on a $30,000 car means borrowing $24,000 (80% LTV).