If you really think about it, it's easier getting a loan for a car than a loan for bus fare!
  • Car Loan BYTES FROM OUR KITCHEN

    Loan to Value Ratio for Car Loan

    LTV, or Loan to Value Ratio, as it is called is the ratio of a loan amount against the market value of a car that is going to be bought with the loan. In simple words, LTV is a measure or standard through which the risk of a loan is measured. Since it implies how much amount of a loan is cushioned by the real world value of the asset, it is a very important aspect of a car loan that the borrowers need to know.

    The actual value of a car is most often lesser than the price that you pay while purchasing a car because a car is a depreciating asset which lost its value immediately after driving it off the showroom. In short, the moment a buyer purchase a car the value of the vehicle goes down and when the buyer drives the vehicle throughout the value continues to go down with every passing year.

    How to calculate the LTV for a car loan?

    While buying a car with the help of a car loan, there are a few things that you as a buyer must consider beforehand. LTV is one such factor that must be taken into consideration while using a car loan for the purpose of buying a car. To make the concept easier for you, it can be said that the LTV of your car loan is the ratio of the loan amount that you have taken to the current market value of the car that you are going to purchase with the loan.

    There is a very simple formula for calculating the LTV of the loan. Here is the formula of how you can calculate the LTV of your car loan-

    LTV= Loan Amount/car value

    The LTV of a loan is expressed in the form of a percentage. Suppose, you are going to buy a car of Rs.3 lakh and for that, you have borrowed a car loan amount of Rs.3 lakh. In this case, your LTV will be 100% (Rs.300000/Rs.300000). Instead, if you have to borrow Rs.2, 50000 for buying a car worth Rs.2, 00000, the LTV of your loan will be 125% (Rs.2, 50000/Rs.2, 00000).

    Why is LTV calculated by the lenders?

    Banks lend money to the borrowers with an expectation that they will pay the money back in due time. If the borrowers don’t repay the money on time then it is a loss for the lenders. However, many times, the borrowers default on the loans resulting in a loss for the lenders.

    In order to safeguard themselves from such risks, the lenders usually ask for a security or collateral while offering a loan. The reason for asking this security is to assure that in case the borrower defaults on the loan, the lender can repossess the collateral and collect the money by selling it off. In this way, the bank or the lender can recover the losses that caused due to the defaulted loan. In case of car loans or auto loans, the collateral is the car itself against which the loan is taken.

    Now, the thing is that taking a security against a loan doesn’t eliminate the entire risk of a lender. Though it is true that if the lender has a security, he or she can anyway recover the money by selling it off, but it is not the case always. The borrower usually borrows more than the exact buying price of a car for multiple reasons. While some borrowers take some extra amount of money for to pay off their existing debts, some others finance protection products in their loans. As a result, the lenders often end up giving more money as loan against a car which is lesser in worth. In such cases, when the borrower defaults on the loan, the lender fails to fetch the money that he has lent the borrower resulting in loss.

    This is the reason why the lenders set LTV for car loans. By setting an LTV they ensure that they in no way get exposed to high amount of risk while providing a car loan.

    How can you reduce the LTV of your car loan?

    As told earlier, LTV is the is the total value of your loan divided by the present value of your vehicle, hence a lender while offering a car loan will seek to offer an amount which shouldn't exceed the cash value of your car which will be hypothecated to the lender as a collateral. If the loan amount is more than the worth of the car, then the lender will be exposed to greater risks in case the borrower defaults on the loan. Hence, to be on the safer side and protect himself from risk, the lender will look for a higher amount of down payment. In other words, a higher amount of down payment can reduce the loan to value ratio of your car loan.

    How does LTV of a car loan work?

    LTV is something that every car buyer should know about in advance to get the best advance of availing a car loan. Here is an example which will help you to clearly understand how Loan to Value of a car loan works.

    Example- Just imagine that you are going to buy a car which costs Rs.5 lakh and to finance the purchase of your car you want to take a loan from a bank or financial organisation. But you have to pay Rs.1,5 lakh of debt from an existing loan and also you want to make a purchase of a service protection product worth Rs.50,000. This means to finance all these costs, borrowing only Rs.5 lakh will not suffice and you have to get a loan amount much higher than the purchase cost. The total amount that you need to borrow including the extra Rs.1,5 lakh for negative equity and Rs.50,000 for protection product will sum up to Rs.7 lakh.

    This means for your loan, the LTV will 110% and you need to apply for a car loan from a lender who offers such high loan amount. Though there are lenders and banks who offer car loans at this high LTV, most of the lenders consider this as high risks and deter from offering such loans. Because if you due to any reason fail to repay the loan, the lender will only be able to get the existing market value of your car at that point of time. This means that the additional 10% of the amount paid to you will be at risk.

    Now assume that you don’t get a lender willing to pay you a loan at 110% LTV. Lenders are willing to give you a car loan at an LTV of 100%. In such cases, you can make a down payment in order to bring down the ratio to 100%. Particularly in this case if you make a down payment of 10% of the total amount then the LTV of the loan will come down to 100%.

    How does loan to value ratio affect the borrowers?

    The loan to value can affect the terms of a loan. While the borrower can enjoy flexible loan terms with a loan of low LTV, a high LTV might affect the loan terms and the bank might ask the borrower to make down payment in order to reduce the LTV. Usually, banks don’t ask for any down payment while offering a car loan. But if the LTV is high, in an attempt to reduce the associated risk the lenders might ask for an initial down payment.

    How does loan to value ratio affect the lenders?

    Typically, no lender prefers to offer a car loan with LTV considering the risk associated with it. Even though, the car for which the borrower is taking the loan, will serve as the collateral or security which the lender can sell if the borrower default on the loan, the lender is at risk if he provides high LTV on the loan. This is because, even if the lender repossesses the vehicle in loan default cases, he will not be able to recover the full loan amount.

    Loan to Value is a key term associated with a car loan and it is vital for the borrowers to be well-informed about this to get the best value as well as better terms on their loan. So, understand the term and make use of your knowledge while opting for a car loan next time.

    Customer Reviews

    • Bank of Baroda Car Loan
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
      The experience with them has been quite good with this loan where the loan amount has been sufficient. The interest rate which they offered has been nominal when compared with the market rate and there has not been any extra charges which they had made so far. Their customer support team had also been supportive as well.
      Was this review helpful? 0
      , navi mumbai
      Reviewed on Jan 18, 2019
    • HDFC Bank Car Loan
      "Good Experience"
      0.5 5.0/5 "Blown Away!"
      Before three years I purchased second vehicle that is Hyundai I 10 , the documentation process was good with HDFC. The dealer coordinated with the bank, hence the process was quick. I got multiple options but I chosen HDFC, the Interest rate is better because I am an existing customer.
      Was this review helpful? 0
      , delhi
      Reviewed on Jan 18, 2019
    • HDFC Bank Car Loan
      "Good Experience"
      0.5 5.0/5 "Blown Away!"
      I was taken car loan from HDFC, first time I purchased SANTRO car, the documentation was very convenient. They gave me the door step service I went to the dealer and they done the process, and on time I got the car deliver. They gave me the flexible emi option.
      Was this review helpful? 0
      , delhi
      Reviewed on Jan 18, 2019
    • SBI Car Loan
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
      It has been quite a good experience i had with this car loan and the loan amount which they had provided has been sufficient as well. The interest rate with them was around 9.25% which was nominal when compared with the market rate. The charges which they had made has been nominal as well, and even their customer support has been responsive as well.
      Was this review helpful? 1
      , bhubaneshwar
      Reviewed on Jan 17, 2019
    • SBI Car Loan
      "Good service"
      0.5 4.0/5 "Great!"
      I have been taken my car loan with State bank of India, they have given me sufficient loan amount, and i am satisfied with the loan amount , and the rate of interest they have charged me up to 9.45% which is bit high compare to other bank,i have asked for 9 % but its okay, and the processing fee they have charged me was nominal,overall service is good.
      Was this review helpful? 0
      , hyderabad
      Reviewed on Jan 17, 2019
    • Kotak Car Loan
      "Excellent service"
      0.5 5.0/5 "Blown Away!"
      I have been taken my car loan with Kotak mahindra bank recently ,like 2 months before i took this loan, and i am happy with the loan amount they have given me ,it was sufficient for me, and the rate of interest they have charged me up to 9.3% which was nominal for me and the processing fee they have charged me was nominal, the loan amount process went smoothly. the overall service rendered by them was really good.
      Was this review helpful? 1
      , chennai
      Reviewed on Jan 17, 2019
    • Central Bank of India Car Loan
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
      It was a good experience i had with this loan and the loan amount which they had provided has been sufficient. The interest rate with them is quite nominal when compared with the market rate. There has not been any sort of additional charges which they had made so far.
      Was this review helpful? 1
      , bangalore
      Reviewed on Jan 13, 2019
    • SBI Car Loan
      "Excellent"
      0.5 5.0/5 "Blown Away!"
      I took my car loan in State Bank of India by last year. The charges are normal. I have spend down payment nearly 1L out of 7L. The branch is near to my residence so will never contact the customer service. The process was immediate and it was completed within 2 days.
      Was this review helpful? 2
      , hyderabad
      Reviewed on Jan 12, 2019
    • HDFC Bank Car Loan
      "Its Excellent"
      0.5 4.5/5 "Excellent!"
      HDFC gave me the door step service for the car loan. I took the loan before three years. It was the fantastic experience for me because I got the better interest, I took the loan for 5 years but I done the foreclose in three years , there was no charges for it.
      Was this review helpful? 2
      , ahmedabad
      Reviewed on Jan 11, 2019
    • Capital First Car Loan
      "Good service"
      0.5 3.0/5 "Satisfactory"
      The process in getting my Car loan from them has been quite good and the process went smooth. The loan amount was sufficient but the interest rate with them has been quite high when compared with the market rate. Their customer support and their response has been good and has been helpful as well.
      Was this review helpful? 2
      , bangalore
      Reviewed on Jan 10, 2019
    • HDFC Bank Car Loan
      "Very Good Service"
      0.5 4.0/5 "Great!"
      My car loan experience with HDFC has been good and the loan amount which they had provided has been sufficient. The interest rate with them has been nominal and there has been some charges like processing fee. Overall their has been a help from their customer support as well.
      Was this review helpful? 1
      , pune
      Reviewed on Jan 09, 2019
    • HDFC Bank Car Loan
      "Average Loan Service"
      0.5 3.0/5 "Satisfactory"
      I have approached the bank directly for my car loan. Since I'm existing customer of HDFC for 13 years, i have chosen them. I purchased the loan amount of Rs. 2 lakhs. They have offered me a interest rate of 16% In October 2018, i have closed this loan. Total tenure period of the loan was 3 years. Car Dealer has recommended me about this loan.
      Was this review helpful? 4
      , srikakulam
      Reviewed on Jan 09, 2019
    • Magma Car Loan
      "Average service"
      0.5 1.5/5 "Bad"
      I have been using my car loan with Magma Fincorp previously, they have given me sufficient loan amount ,the rate of interest they have charged me was high,and the processing fee they have charged me was high , i was not happy with there service.
      Was this review helpful? 3
      , ghaziabad
      Reviewed on Jan 08, 2019
    • HDFC Bank Car Loan
      "Good service"
      0.5 4.0/5 "Great!"
      I have been using my car loan with HDFC bank, there service is too good, the loan amount they have given me was sufficient,the rate of interest they have given me up to 9% which is nominal for me,and the processing fee they have charged me was nominal only they have charged me up to 1% only,and still my loan is running ,there was no hidden charges they have charged apart from that,overall service is good.
      Was this review helpful? 1
      , ghaziabad
      Reviewed on Jan 08, 2019
    • HDFC Bank Car Loan
      "Nice offer and nice loan"
      0.5 4.0/5 "Great!"
      I had a car loan with HDFC 1 year back. They have given me a nice offer hence i opted the loan with HDFC. I'm not sure about the partial payment and pre-closure facility. They have given me a nice interest rate according to what i want. I was taken a loan amount of Rs. 3 lakhs.
      Was this review helpful? 0
      , new delhi
      Reviewed on Jan 08, 2019
    • review Car Loan
      "Need to reduce the charges"
      0.5 3.5/5 "Pretty good"
      I have taken a car loan in Nissan Institution, it was good. I bought the car from same showroom and they have provided me a facility. The rate of interest was high. The documentation procedure was simple. I have taken the loan almost 2 years back and its still running. The loan tenure is 5 years.
      Was this review helpful? 0
      , mumbai
      Reviewed on Jan 08, 2019
    • HDFC Bank Car Loan
      "Looking for less interest rate"
      0.5 4.0/5 "Great!"
      My car loan experience was good with HDFC bank, loan amount was sufficient and the rate of interest was high when compared to other banks. Customer service was good and they responded on time. The tenure period for this car loan is for 5 years.
      Was this review helpful? 1
      , new delhi
      Reviewed on Jan 08, 2019
    • ICICI Bank Car Loan
      "Excellent service"
      0.5 5.0/5 "Blown Away!"
      I have been holding my car loan with ICICI bank, the rate of interest they have charged me was nominal and they have charged me processing fee they have charged me which was nominal, the loan amount they have given me was sufficient according to the car price i got my loan, still this loan is running,overall service is good.
      Was this review helpful? 3
      , new delhi
      Reviewed on Jan 08, 2019
    • IOB Car Loan
      "Excellent service"
      0.5 5.0/5 "Blown Away!"
      I have been holding my car loan with Indian overseas bank, the loan amount they have given me was sufficient, they have charged nominal rate of interest they have charged me up to 9 % which was nominal and there is zero processing fee , so far there service is have experience was good, they have not taken any hidden charges ,there overall service is good.
      Was this review helpful? 1
      , mumbai
      Reviewed on Jan 08, 2019
    • HDFC Bank Car Loan
      "Good loan experience with HDFC"
      0.5 4.0/5 "Great!"
      My car loan running with HDFC bank, the customer service is super and the fast approval on the disbursement. They taken 15 days to deliver the car. The principal amount is Rs. 4 lakhs for the tenure of 5 years, the car model is baleno which is latest.
      Was this review helpful? 1
      , aligarh
      Reviewed on Jan 07, 2019
    Common Loader Icon

    Display of any trademarks, tradenames, logos and other subject matters of intellectual property belong to their respective intellectual property owners. Display of such IP along with the related product information does not imply BankBazaar's partnership with the owner of the Intellectual Property or issuer/manufacturer of such products.

    reTH65gcmBgCJ7k
    This Page is BLOCKED as it is using Iframes.