How to Determine the Amount a Bank Will Loan on a Carby Leonardo R. Grabkowski
Although the term "LTV" (loan-to-value) is most often referenced to mortgages, the same principle applies to auto loans. Auto finance companies and lenders use an auto loan's LTV ratio as a determining factor when deciding whether to approve or decline a car loan. In addition, a lower LTV ratio is considered lower risk, and may qualify for lower rates, while a higher LTV ratio may cause a rate spike. Using a bank's preferred LTV percentage, you can determine how much the bank will loan on a car.
Contact the bank and find out what their standard LTV percentage is. The LTV percentage of a particular bank will determine how much they will loan on a car. Some banks lend 100 percent, others lend slightly more, and others lend slightly less.
Find out which assessed value the bank uses. Most banks use NADA values; however, some use Black Book or Kelley Blue Book. Ask whether their LTV percentage is calculated upon the vehicle's "loan" value, "trade" value or "retail" value.
Ask whether the LTV percentage includes TT&L (tax, title and license). If it does not, the bank may finance the TT&L on top of the LTV percentage; it it does, the percentage must include TT&L or you may have to pay for it out-of-pocket.
Look up the value of the vehicle using the same source the bank uses (NADA, Black Book, Kelley Blue Book, etc.), and then determine the appropriate value (loan, trade or retail).
Multiply the assessed value by the LTV percentage to determine how much the bank will loan on the vehicle. If the bank's LTV percentage is 85 percent of trade value, and the vehicle has a trade value of $11,500, the bank will loan $9,775 on it.
- Keep in mind that banks use other information to determine whether they will loan money on a vehicle or not. The age and mileage of the vehicle usually plays a role. The buyer's credit history also plays a significant role.