How to Determine a Used Car Loan Value

Buying a car is often stressful, but if you are armed with the right knowledge at the start, the negotiations may prove more straightforward. One of the most basic things to understand is auto loan value, which differs a bit with used vehicles. Taking the time to research available, affordable cars is also important. In short, knowing how to calculate the loan value of a car and the best sites to buy used cars can put you in the driver's seat sooner, for less money and with fewer headaches.

Auto loan value is the amount of money that a lender will allow a borrower to have to purchase a vehicle. If a car is priced at $25,000 and the lender will provide $15,000, the borrower needs to make up the difference with a down payment of $10,000. The loan value of a car is different when it is a used vehicle; according to the writers at Cars Direct, lenders use the Kelley Blue Book, Black Book and NADA guides to establish vehicle values.

Lenders work with loan-to-value (LTV) ratios to determine the loan value of a car. LTVs are shown in percentages and represent a portion of the vehicle's value, relative to that loan amount. So if the car is valued at $25,000 and the borrower wants to borrow that same amount, the LTV = 100 percent. This is how lenders calculate loan risk. The lower that percentage is, the easier it will be to get the loan.

To determine a used car's LTV, its book value can be looked up in one of the three sources described above (Kelley, Black Book or NADA). Lenders can use any of these, so it makes sense to ask them which they prefer.

Borrowers should also inquire if the LTV percentage will be figured on the vehicle's loan, trade or retail value (this is their assessed value) since these numbers are different, explains the team at Rate Genius. Lenders are more likely to consider a larger percentage if the value being considered is a trade-in value than a retail value.

Once you know which book and which assessed value the lender is using, you can proceed to the next calculation. Take the car's selling price and divide it by the book value being used; that will be the LTV. Then, multiply the book value by the LTV percentage. This should give you a good idea as to how much money the lender is willing to loan. Another example: if the lender's LTV is 75 percent of the car's trade value, and the car's trade value is $25,000, the bank will loan $18,750.

Of course, this may not include fees for taxes, title and license. Some banks will add this onto the loan amount and finance that as well, but it is best to ask about this upfront. Also, keep in mind that LTV is not the only determining factor for loan approval. The lender will look at the vehicle's mileage, age and condition, as well as the potential borrower's credit history.

The writers at Santander Consumer USA post that the majority of used car shoppers spend a lot of time researching the best site to buy used cars. Some of these include Cars.com, Autotrader and Carvana. The Kelley Blue Book, Black Book and NADA are also online, so you'll have all the information you need.