Loan-to-Value Ratio Explained: Why It Matters When Refinancing Your Vehicle

When you’re refinancing your auto loan, one of the most important numbers lenders look at is your Loan-to-Value ratio (LTV). This figure compares how much you owe on your current loan to how much your vehicle is worth. The formula is simple: divide your loan balance by your car’s market value and multiply by 100. For example, if your loan balance is $16,000 and your vehicle is worth $20,000, your LTV is 80%. This matters because the LTV shows lenders how much equity you have in the car. A low LTV means you owe less than the car is worth, which lowers the lender’s risk. A high LTV, on the other hand, indicates you’re "upside-down" on your loan—owing more than your vehicle is worth—which can make refinancing more difficult or expensive.

Why Loan-to-Value Matters for Your Refinance Approval and Interest Rate

Lenders use Loan-to-Value to determine whether to approve your refinance and at what rate. A low Loan-to-Value typically results in better terms, such as a lower interest rate or a wider selection of loan options. If your LTV is high, you may still qualify, but often at a higher rate to account for the added risk. That’s why understanding and improving your LTV before applying can directly impact how much you’ll save over the life of your loan. Most lenders prefer to see an LTV under 100%, and ideally under 85%. Staying below that threshold can also open up additional refinancing features, such as the ability to cash out some of your vehicle’s equity or roll in optional protections like GAP insurance or a vehicle service contract—without driving your ratio too high.

How to Lower Your Loan-to-Value and Strengthen Your Application

If your Loan-to-Value is currently above ideal levels, there are ways to improve it. The most straightforward strategy is to make a few extra payments on your current loan before applying to refinance. This reduces the amount you owe, helping to bring the ratio down. Another way to improve your LTV is to be patient—continuing to make your regular monthly payments lowers the loan balance over time. You might also benefit from a fresh vehicle appraisal, especially if your car has held its value well or if market demand has driven up its worth. The key takeaway is that the lower your LTV, the more favorable your refinance terms will be—both in terms of approval odds and the rate you're offered.

Digital Auto Refi Co Rewards Low LTV with Lower Rates

At Digital Auto Refi Co, we not only understand the importance of LTV—we reward customers for maintaining a low one. If your LTV is under 85%, we’ll reduce your approved interest rate by an additional 0.25%, giving you even greater savings. That’s on top of the already competitive rates we offer. A lower rate doesn’t just mean a smaller monthly payment—it means paying less overall for the same car. It’s our way of helping smart borrowers get the most value out of their refinance. So if you’re thinking about refinancing, start by checking your vehicle’s value and your current loan balance, then reach out to Digital Auto Refi Co to see how much you could save—especially if your LTV is working in your favor.