What Is Loan-to-Value (LTV) on a Car Loan?
If you’ve started shopping for an auto loan, you’ve probably run into the term “loan-to-value”, often shortened to LTV. It’s one of the biggest factors lenders look at, and understanding it can help you get a better rate.
The Simple Definition
Loan-to-value is the percentage of a vehicle’s value that you’re borrowing.
LTV = Loan Amount ÷ Vehicle Value × 100
If a car is worth $20,000 and you’re borrowing $18,000, your LTV is 90%. If you’re borrowing the full $20,000, your LTV is 100%.
Why Lenders Care About LTV
A car loses value the moment it’s driven off the lot, and it keeps depreciating from there. If your LTV is high, meaning you owe close to (or more than) what the car is worth, the lender has less cushion if something goes wrong and the vehicle needs to be repossessed and resold. That extra risk is why loans with a high LTV often come with a higher rate, and why loans above a certain LTV threshold may require a larger down payment.
How LTV Affects Your Loan
- Lower LTV → typically a better rate. You’re seen as lower risk.
- Higher LTV → may mean a higher rate, or a required down payment. Especially common on used vehicles, which depreciate faster than new ones.
- LTV over 100% → you’re in negative equity. This happens when you finance more than the car is worth, often because you rolled over a balance from a previous loan. Learn more about negative equity.
A Real Example
Say you’re buying a used car valued at $15,000. You put $2,000 down and finance $13,000.
LTV = $13,000 ÷ $15,000 × 100 = 86.7%
If you’d put $4,000 down instead and financed $11,000, your LTV would drop to 73.3%, likely putting you in a stronger position for a better rate.
How to Lower Your LTV
- Make a larger down payment. Even an extra $1,000–$2,000 can meaningfully move the number.
- Use trade-in equity. If your current vehicle is worth more than you owe on it, that equity can reduce what you need to finance.
- Choose a less expensive vehicle relative to your down payment.
- Avoid rolling over negative equity from a previous loan, which pushes your new LTV above 100% before you’ve even started.
The Bottom Line
LTV is really just a measure of how much cushion exists between what you owe and what your car is worth. Keeping it lower, through a down payment, trade-in equity, or both, generally means a better rate and a healthier financial position throughout the life of your loan.
Have questions about how your specific situation affects your rate?
