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. In car loans, it compares the amount of the loan 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 of the vehicle being purchased

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

3. Importance of LTV Calculation

Details: LTV is important because it helps lenders assess risk. A higher LTV ratio means more risk for the lender, which might result in higher interest rates or the requirement for additional insurance.

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. Higher ratios may require gap insurance.

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

Q3: Can LTV be more than 100%?
A: Yes, if you're borrowing more than the vehicle is worth (common when rolling over negative equity from a previous loan).

Q4: How is vehicle value determined?
A: Lenders typically use the lower of the purchase price or book value (like Kelley Blue Book value).

Q5: Does LTV affect loan approval?
A: Yes, extremely high LTV ratios might make it harder to get approved or require a larger down payment.