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. For 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:

• \( Loan \) — The amount being borrowed for the car
• \( Value \) — The actual value of the vehicle

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

3. Importance of LTV Calculation

Details: LTV is a key factor lenders use to determine loan terms. Lower LTV ratios may qualify for better interest rates and terms, while higher LTV ratios (typically above 100%) may require gap insurance.

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, lenders prefer LTV ratios of 80% or less. Above 100% means you're financing more than the car is worth.

Q2: How does LTV affect my car loan?
A: Higher LTV ratios may result in higher interest rates or require additional insurance. Very high LTV may lead to loan rejection.

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

Q4: How can I lower my LTV ratio?
A: By making a larger down payment, choosing a less expensive vehicle, or negotiating a better purchase price.

Q5: Is LTV calculated on purchase price or market value?
A: Typically on the lesser of purchase price or market value, but policies vary by lender.