1. What is Loan-to-Value 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 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:

• \( P \) — Loan amount in dollars
• \( Vehicle\ Value \) — Actual value of the vehicle in dollars

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

3. Importance of LTV Calculation

Details: Lenders use LTV to assess risk. Lower LTV ratios generally mean better loan terms. Most lenders prefer LTV ratios under 100% (meaning you're not borrowing more than the car is worth).

4. Using the Calculator

Tips: Enter the loan amount and vehicle value in dollars. Both values must be positive numbers. The calculator will show the LTV percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is a good LTV ratio for an auto loan?
A: Typically, lenders prefer LTV ratios below 80% for used cars and below 90% for new cars. Lower ratios may qualify for better interest rates.

Q2: Can LTV be over 100%?
A: Yes, if you're borrowing more than the car's value (common when rolling negative equity from a previous loan into a new one).

Q3: How does LTV affect my loan terms?
A: Higher LTV ratios often result in higher interest rates and may require gap insurance to protect the lender.

Q4: Does this calculator account for trade-ins or down payments?
A: No, it calculates basic LTV. For trade-ins or down payments, subtract them from the vehicle value before calculating.

Q5: How often should I check my LTV?
A: It's good to check whenever refinancing or if the vehicle's value changes significantly (after major modifications or market shifts).