LTV means Loan to Value. In the case of car loan, LTV is the amount of cash, that can be approved to the borrower as a loan to the value of the vehicle being purchased. Different banks practice different norms for deciding LTV on car loans. In India, LTV for used cars is much lower as compared to that of the new cars, as banks or other agencies prefer financing new cars. Moreover fixing LTV for a new car is reasonably easier than carrying out the same process for used cars, because the rate of used car cannot be calculated accurately. Many factors like wholesale price, condition of the car, etc. are considered carefully while calculating its value as the financing agent wants to be safe and not over finance the used car.
Implications of LTV %
In case of a car loan, LTV is calculated as:
Loan to Value (LTV) = Amount Sanctioned/Vehicle Value.
LTV = 1 means that the 100% of the cost of the vehicle is sanctioned by the financing agent through the car loan. This suggests that the borrower has not made any down payment before taking a loan. More is the figure of LTV; lower is the amount contributed by the customer towards his purchase.
LTV in no case should exceed the value 1 as it implies that the customer has tricked the bank by availing more amount than required.
LTV on Car Loans in India
In general, the LTV on new cars in India is around 80%, which can reach up to maximum of 90% in special cases, whereas for used cars, the LTV falls to around 60-79%. Segment of the car being purchased, credit rating and the EMI payment capacity of the borrower, are some factors that determine LTV on car loans.The banks may provide 100% finance on all the costs related to vehicle including on road price for salaried especially for those working in well established and reputed public organizations. The banks have the unrestricted powers to increase or decrease the Loan to Value (LTV) on a car depending upon the profile of the borrower.
RBI has fixed some guidelines for LTV on home loans in India, but in case of Car loan there are many deviations. It is now upto the customer to choose the amount, he wants to borrow. However, it is advisable for the borrower to avail lesser funds from banks as in India; the rate of interest is high, and the resources are depreciating. So it is better to use available funds, as much as possible to make down the payment.