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. In car loans, it compares the outstanding loan amount to the current value of the vehicle.

2. How Does the Calculator Work?

The calculator uses the LTV formula:

Where:

• Outstanding Loan — Remaining balance on the car loan
• Vehicle Value — Current market value of the vehicle

Explanation: The equation calculates what percentage of the vehicle's value is still owed to the lender.

3. Importance of LTV Calculation

Details: LTV is crucial for lenders to assess risk and for borrowers to understand their equity position. Higher LTV ratios may affect refinancing options and insurance requirements.

4. Using the Calculator

Tips: Enter the current outstanding loan balance and the vehicle's current market value. Both values must be positive numbers in the same currency.

5. Frequently Asked Questions (FAQ)

Q1: What is a good LTV ratio for a car loan?
A: Generally, lenders prefer LTV ratios below 80% for used cars and below 90% for new cars.

Q2: How does LTV affect my car loan?
A: Higher LTV may result in higher interest rates or require gap insurance to protect the lender.

Q3: How often should I check my LTV ratio?
A: It's good to check whenever considering refinancing or when the vehicle's value may have significantly changed.

Q4: Why does my LTV matter if I'm making payments?
A: It helps you understand your equity position and whether you might owe more than the car is worth (being "upside-down" on the loan).

Q5: Can LTV be more than 100%?
A: Yes, this means you owe more on the loan than the car is currently worth, which is common in early loan periods due to depreciation.