Need Help Understanding the Lingo

[Anonymous]

I read in a post on here that if your "loan to value is within the prescribed margin," a down payment on a car is not necessarily even required.  

Huh?  My apologies for being so dense but, I have no idea what "loan to value" means, nor "prescribed margin" nor what it is being "within a prescribed margin" -- plain English please???  And, please give some examples if possible for further clarification.  

Thank you! 

[Anonymous]

The loan to value ratio (LTV) tells you how much of a property is being financed.  It is a way to tell how much equity you have in a property.

For example, assume you buy a home worth $100,000.  If your mortgage is for $80,000, then your loan to value ratio is 80% (because your loan of $80,000 is 80% of the home's total value).

Calculate the LTV ratio by dividing the loan value into the property value:  80,000/100,000 = 0.8.

Higher loan to value ratios mean higher risk for the lender.  If you fail to pay back a home loan, for example, the lender can foreclose on your home (or sell it).  If they have to sell for a higher price - because your loan to value ratio is high - their job is more difficult.  On the other hand, if you've only borrowed 20% of a property's value, the chances are good that your lender will get their money back.

Some lenders will allow you to borrow more than 100% of a property's value if your credit is good

[Anonymous]

I was asking with reference to the "property" being an automobile and, bottom line, I want to know if there is a way to buy a car without a down payment being required. 

[Anonymous]

The same principle described above would apply to automobiles also. The value would be either the MSRP (new) or the book value (used) and then compare the amount of the loan.

Within the prescribed value would simply be what the lender is willing to accept as LTV on the contract. The sale is obviously going to include fees & taxes above the negotiated price of the automobile. If the bottom line of the loan compared to the value of the car meets the lender requirements then no cash is necessary to complete the deal.

Some lenders prescribed value may be 90% of the vehicle value, some may be 110% of the vehicle value. Obviously your credit score and risk factors will play a role.

If I walk in with a 780 FICO score and make 100K / year a lender may let me walk out with a loan for 45,000 on a 40,000 car. If my FICO score is 620 and I make 30K / year a lender may want 10% equity, no more than 90% LTV on a $25,000 car. These are just examples and not intended to be real world facts.

EDIT: My apologies for being so wordy. I probably could have said it simpler.

[kimmiller112]

There are a lot of factors involved.  If you have a trade in where the car is worth less than what is owed on it, they will probably ask for a down payment to offset that difference.  If the dealership is offering a rebate of say $1000, that brings the amount financed down a little and a down payment may not be required.  If your credit is good, a down payment is usually not required, however if your credit is bad, a down payment will be required (and that can vary, but is usually 20%).  If you catch a "sale" such as what a lot of dealerships are doing for Memorial Day weekend, they may knock the price down a little and a down payment may not be required.

[Anonymous]

most places yes require down payment cause once you factor in tax tag title etc the fees exceed the value of the vehicle

[mtrsprt]

Purchasing a vehicle with no money down, is about the worst thing you can do.  This is what people tend to ignore.  They look at it as a benefit, but in reality, it's sets you up for going upside down on the value of the vehicle, and increasing the overall amount paid for the automobile through extended interest and loan term.  Also, if your vehicle gets damaged and you don't have GAP insurance, your also up the creek.

[steffiejoe]

This is confusing to me to.

I am thinking about purchasing a used car and  looking at financing with Penfed. On there web site it says , "Maximum Used Auto Loan amount is NADA "Retail Value." Maximum term based on amount borrowed. "

In layman's terms can some one please explain what this means?

Thanks

[Anonymous]

It means they will not loan more than the book value on the vehicle. If your taxes, title, etc. put the loan above book value you need cash for the difference. The other line means we will limit the length of the loan based on how much you borrow. For example a loan of less than %10,00 may be limited to no more than 48 months. At $10,001 or more we will extend the loan to 60 months. Note these are just examples and not meant as Penfeds actual terms. If you drill down a little farther in their FAQ's on the website you can probably find the real numbers.

[Anonymous]

Side note, if you actually have zero down then the "boring, financially healthy" choice is to save up some money before buying, or trading in with value. The new car smell always wears off, so to speak.

Have you bought before? What's the rest of your credit like?