What is the Loan-to-Value (LTV) Ratio for a Pre-Owned Car?

Buying a pre-owned car can be a smart financial move, but only when you understand how your car loan is structured. One of the crucial points is understanding the proportion of your cost for the used or pre-owned car that a bank or loan provider is willing to finance. This is depicted by the Loan-to-Value (LTV) ratio.

In this guide, we will tell you how most loan providers calculate the LTV of your pre-owned car and why it matters to you.

What is a Loan-to-Value (LTV) Ratio? And, Its Formula

A loan-to-value (LTV) ratio is the depiction of the level of risk a loan provider is willing to take when financing a loan. In the case of used cars, LTV is the percentage of the car’s assessed value that your vendor agrees to finance.

LTV Calculation Formula

LTV Ratio (%) = (Loan Amount / Car’s Value) × 100

If your desired pre-owned car is worth ₹10 lakh and the loan provider offers a 70% loan-to-value (LTV) ratio, you will receive a ₹7 lakh loan and pay the remaining ₹3 lakh as your down payment.

The higher your LTV, the greater loan amount your financier provides, but it also means a greater risk for them and higher EMIs or a greater loan tenure for you.

How is the Loan-to-Value (LTV) Ratio Determined?

Every loan provider has their own way of calculating the LTV ratio. But your LTV ratio mainly depends on four things:

1. The Model of the Car

Cars of popular models tend to have a stronger resale value. Therefore, financiers usually offer higher LTVs for such car models.

However, luxury car models or car models that only a niche audience buys, depreciate faster in their resale value. These car models, therefore, have lower LTVs.

2. The Age and Condition of the Car

Older, pre-owned cars will have a lower LTV ratio as the risk is greater when compared to a more recent vehicle in decent working condition.

3. The Borrower’s Income and Credit Score

If you’ve got a stable income and a good repayment history, you are seen as a low-risk borrower, and that helps reduce your LTV ratio.

Learn how to get a car loan if your credit score is low.

4. The Loan Provider’s Policies for Used Car Loans

Different financiers follow varied risk appetites. For example, SK Finance offers competitive LTVs for car loans. Their flexible lone tenures are designed to make pre-owned car ownership more accessible without making it unaffordable.

What is the Impact of the LTV Ratio on Borrowers?

Your LTV ratio determines the balance between the amount you borrow and the down payment you make. Here’s how it impacts your costs: 

Read next: How to choose the right tenure for your car loan

What is a good LTV (loan-to-value) ratio for used cars?

The question that remains in everyone's mind is what is the LTV ratio given by most of the lenders on second hand cars. For your information, most of the lenders and NBFCs provide LTV ratio of 70%-80% for old or pre-owned cars. This is a balanced limit where there is no need for you to incur huge down payment or be burdened with heavy EMIs. SK Finance offers you used car loans at competitive interest rates, flexible repayment plans and transparent terms, making the journey of buying your dream car a stress-free one.

Source

Explore: SK Finance se Loan Lena Easy Hai

Is the loan-to-value ratio (LTV) higher or lower on luxury used cars?

The LTV ratio of luxury used cars is generally low. The value of these vehicles depreciates at a fast pace and their maintenance and repair costs also put a big dent in your pocket. To minimize this risk, loan companies usually keep the LTV low for expensive vehicles, even if your financial condition is good.

Can you take a full loan on an old car?

Many people have a question whether a full loan can be taken on an old car, so let us tell you that technically speaking you can take a full loan, but in practice this is rarely seen. Many lending companies including SK Finance prefer down payment as it signals commitment and also reduces the risk of default. The interest rate on a 100% loan is likely to be higher or the terms and conditions may also be more stringent. Here are some tips to get the best loan offer:

1. Compare financiers’ LTV ratios; a small difference can significantly change your EMI.
2. If you can, make a slightly higher down payment. It will reduce your interest costs over time.
3. Maintain a healthy credit score; it’s your silent negotiator.
4. For older or used luxury models, try to get a lower LTV to manage your budget accordingly.

Conclusion 

The Loan-to-Value ratio is more than just a number; it shows how much risk your lender is taking and how much of the purchase you own. Before you sign the papers, you need to know your LTV because it affects everything from your EMIs to your peace of mind. 

visit our nearest SK Finance branch today if you want to buy your first car or trade in your old one. Our executives will help you figure out how much you can borrow and the best ways to pay it back based on your income. We have the best interest rates in the business for car loans.