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 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 value or purchase price of the vehicle

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

3. Importance of LTV Calculation

Details: LTV is a key factor lenders use to determine loan terms. Lower LTV ratios generally result in better interest rates and may eliminate the need for private mortgage insurance (PMI) in some cases.

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 an auto loan?
A: Typically, lenders prefer LTV ratios of 80% or less. Higher ratios may require additional insurance or result in higher interest rates.

Q2: How does LTV affect my auto loan?
A: Lower LTV ratios generally qualify for better interest rates and terms. LTVs above 100% mean you owe more than the vehicle is worth (negative equity).

Q3: What's the difference between LTV and combined LTV (CLTV)?
A: CLTV includes all loans on the vehicle (like a second loan or lease buyout), while LTV only considers the primary loan amount.

Q4: Can LTV be more than 100%?
A: Yes, if you borrow more than the vehicle's value. This often happens with rolled-over negative equity from a previous loan.

Q5: How can I lower my LTV ratio?
A: You can lower your LTV by making a larger down payment, choosing a less expensive vehicle, or paying down your loan principal faster.