# What is a Loan to Value and How to Calculate LTV Regarding Auto Financing.

Last Updated: Wednesday 30th of March 2011 @ 05:00:00 AM

In the automotive world, what is Loan to Value (LTV)?

In the automotive world, Loan to Value (LTV) is the amount financed for a car loan divided by the current value of the vehicle. For new cars the value is typically the invoice amount. For used cars, the trade of wholesale value is typically used in order to determine the value of a vehicle so as to not overstate the expected sale or trade-in value.

A lower LTV ratio means that the car is worth more than the financed amount. The lower the ratio the more appealing it is to a lender. Many lenders have LTV limits which is why this calculation becomes important for someone purchasing a car. The exact value is determed by the lending institution.

Loan to Value (LTV) = Amount Financed/Vehicle Value.

LTV is equal to

1 when the financed amount is equal to the automobile's value. If a vehicle is 100% financed (meaning no down payment) then the LTV will most likely be greater than 1. The value of a new vehicle is the invoice price but not including fees. The loan would then include these fees such as tax, title, and license. For example a car with a \$25000 out the door price may only be worth \$20,000 for trade which would result in a loan to value ration of 125%.

This process is essentially the same for calculating the LTV of a mortgage. Simply substitue the outstanding mortage balance with and the current value of the home to arrive at the LTV of a home loan. To get the value of the home you can have it appraised, which will cost money, or do a rough estimate by comparing with other similar houses in the area.

Source: www.carloanpal.com

Category: Credit