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What is A Car Loan To Value Ratio In Milton?

What is A Car Loan To Value Ratio In Milton?

When researching auto loans in Milton, you’ll hear the term car loan to value ratio quite a lot. Along with debt to income ratio, it’s a key calculation in deciding the affordability of the loan and will play a pivotal role in deciding whether you’re accepted for the loan or not.


So what is the car loan to value ratio? How is it calculated and why is it so important?


What is the Car Loan to Value Ratio?


The loan to value ratio, LTV, is a financial measure but is also an indication of risk. It is expressed as a percentage and measures the cost of the loan against the value of the car you’re buying with the loan.


The higher the LTV, the higher the potential risk, which is why lenders use the calculation.


For example, you want to buy a car worth $40,000 and want to use a loan of $40,000 to pay for it. The LTV is 100% because the amount you’re borrowing is 100% of the value of the car.


If you want to buy a $40,000 with a $30,000 loan, the LTV is 75% because the loan is 75% of the value of the car.]


Why is loan to value important in auto loans


Loan to value is important for lenders to assess risk. The higher the LTV, the more the lender stands to lose should you default. Therefore, the higher the risk.


The higher the risk, the higher the interest rate. That’s why LTV is important for both of you.


From a lender’s perspective, they would potentially lose more money with a 100% LTV loan than a 75% LTV should you default. Therefore, they are much more careful deciding whether to offer a higher LTV loan to someone.


If you default and they repossess and sell the car, they would lose more money on an 100% LTV loan than they would on a 75% LTV loan.


That’s why lenders love down payments, as they lower the LTV.


Loan to value and down payments


Loan to value ratios are one reason why lenders prefer borrowers with down payments. The down payment lowers the lender’s exposure to risk.


That’s why borrowers with larger down payments are much more likely to be approved for a loan than someone with a smaller down payment. Should you default, the lender knows they will recoup the majority of the money back when they sell the car.


If you’re having trouble being accepted for an auto loan in Milton, you could add more as a down payment or borrow less. Both will reduce the LTV, which could be enough for the lender to change their mind.


LTV is a relatively straightforward concept that makes sense once you know what it is. The higher the LTV, the higher the risk for the lender, the more closely they will look at an application.


The lower the LTV, the more likely you are to be accepted in almost every circumstance.


Contact Unique Chrysler for help, advice and competitive Milton car finance and leasing.


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Categories: Auto Loan

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