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 vehicle financing, 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 market value of the vehicle

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

3. Importance of LTV Calculation

Details: LTV is crucial in vehicle financing as it affects loan approval, interest rates, and whether private mortgage insurance is required. Most lenders prefer LTV ratios of 80% or less 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 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. Above 100% means you're financing more than the vehicle's value.

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: Can LTV be more than 100%?
A: Yes, if you're financing more than the vehicle's value (common with rolled-over negative equity from a previous loan).

Q4: 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).

Q5: Does down payment affect LTV?
A: Yes, a larger down payment reduces the loan amount and thus lowers the LTV ratio.