Owning a car can give you a sense of independence and convenience. As cars are quite expensive, you may want to apply for a Car Loan. Keep in mind that banks often provide Car Loans only up to a certain percentage of the car's price. The LTV ratio quoted by your bank tells you how much of your car's cost will be covered by the loan. Before you apply for a Car Loan, you must understand what is a good LTV for a Car Loan.
What is the LTV ratio?
LTV ratio stands for 'loan-to-value ratio'. It is the percentage of your car's total cost that the bank is willing to finance through a loan. You are responsible for paying the balance cost as a down payment. The mathematical formula for Car Loan LTV is:
(Car Loan principal amount / Total price of your car) * 100
For example, suppose that you are buying a car worth ₹10 lakh and the bank is ready to provide a loan of ₹8 lakh for it. Your LTV ratio would be 80% [(8/10)*100]. It means that you would have to pay ₹2 lakh from your pocket as down payment.
Now that you understand what is loan-to-value ratio on a car, let's take a look at what a good LTV would be.
What LTV ratio is considered good?
There is no ideal LTV ratio, but a high ratio is considered better. The higher the LTV ratio, the more of your car price would be covered by the bank. The best LTV ratio you can aim for is 100%, because it covers the entire price of your car. However, getting a loan with 100% LTV is subject to your credit score, credit history and income. Generally, an LTV ratio of 80% or more is considered favourable.
You benefit from high LTV Auto Loans because your down payment gets reduced and more of your car cost is covered through your loan.
Also Read: Understanding Car loan tenure
Conclusion
Loan-to-value ratio is a helpful parameter for selecting the right
Car Loan for you. You can compare the LTV ratios offered by different lenders. Since a high LTV ratio is considered favourable, you can choose the lender that offers you the highest ratio.
Axis Bank provides New Car Loans with on-road funding of up to 100%. These high-value Car Loans provide several other benefits like attractive Car?Loan interest rates starting at just 9.2% p.a., flexible tenures up to 7 years, and Axis eDGE reward points. Get your dream car now with Axis Bank's Car Loan.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
