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

The Loan-to-Value Ratio (LTV) is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. In 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 market value of the vehicle

Explanation: The equation calculates what percentage of the vehicle's value is being financed through the loan.

3. Importance of LTV Calculation

Details: LTV is crucial for lenders to assess risk. Lower LTV ratios generally mean less risk for the lender and may result in better loan terms. Most lenders prefer LTV ratios of 80% or less 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 output the LTV as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is a good LTV ratio for a car loan?
A: Generally, an LTV of 80% or lower is considered good. Some lenders may require gap insurance for LTVs above 100%.

Q2: Can LTV be more than 100%?
A: Yes, if the loan amount exceeds the vehicle's value. This often happens with rolled-over negative equity from a previous loan.

Q3: How does LTV affect my interest rate?
A: Higher LTV ratios typically result in higher interest rates as they represent greater risk to the lender.

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

Q5: How is vehicle value determined?
A: Lenders typically use the lower of the purchase price or current market value (from sources like Kelley Blue Book or NADA).