Unlock 7 Secrets to Mastering Loan to Value Ratios

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In the intricate world of car finance, it’s crucial for clients of Braid Finance to navigate the maze of financial terms with confidence. A central concept in this landscape is the “Loan to Value Ratio” (LVR), a term that plays a pivotal role in understanding the nuances of car loans.

What is Loan To Value Ratio (LVR)?

The LVR is a critical measure used by lenders, including Braid Finance, to evaluate the risk involved in a loan. It quantifies the proportion of a car's value being financed through the loan. An LVR of 70% means 70% of the car's value is covered by the loan. This ratio is fundamental in determining the terms and approval of the loan.

The Importance of LVR in Car Financing

A lower LVR is often synonymous with reduced risk for lenders, leading to more advantageous terms for borrowers. Braid Finance views an LVR of 80% as a significant benchmark. Exceeding this threshold typically results in higher interest rates due to increased risk.

Calculating LVR in Car Financing

To determine the LVR, divide the loan amount by the car's value and multiply by 100. An LVR under 80% is generally preferable for both parties involved in the loan agreement.

Perspectives on High LVR

High LVR loans, while still accessible, come with certain caveats. Braid Finance, mirroring industry norms, may impose higher interest rates for loans with an LVR exceeding 80%.

Impact of Deposits on LVR

A substantial deposit can substantially lower the LVR, influencing the loan’s terms favorably. For example, a jump in the deposit from 10% to 20% can significantly alter the LVR.

LVR Dynamics and Market Value Fluctuations

The LVR is not a static figure. As the market value of the car changes and as you pay off the loan, the LVR adjusts accordingly. It’s critical for borrowers to understand how these market dynamics can affect their financial standing.

Strategies to Optimize Your LVR

  1. Hefty Down Payments: A larger initial payment reduces the borrowed amount, thus lowering the LVR.
  2. Choosing Affordable Cars: Opting for more budget-friendly cars enables higher down payments, thereby reducing the LVR.
  3. Consistent Loan Repayments: Regular payments contribute to a gradual decrease in the LVR.

Extending the Concept of LVR

Beyond the immediate realm of car financing, the concept of LVR extends to other areas of secured loans, including home mortgages. The principles remain consistent: a lower LVR signifies lower risk and often leads to better loan conditions.

LVR in Different Financing Scenarios

The application of LVR varies across different financing scenarios. In the case of car leasing, for instance, the LVR can influence the lease terms. Similarly, in refinancing scenarios, a reevaluation of the LVR is necessary to determine new loan terms.

LVR and Financial Planning

Understanding LVR is essential for sound financial planning. It helps borrowers assess their borrowing capacity and understand the implications of various loan options. For Braid Finance customers, a keen grasp of LVR equips them with the knowledge to make strategic financial decisions.

For customers of Braid Finance, mastering the concept of Loan to Value Ratio is crucial for navigating car financing effectively. It’s a key determinant of loan terms, interest rates, and overall financial health. By understanding and strategically managing LVR, borrowers can approach car financing with greater confidence and clarity.


The Loan to Value Ratio (LVR) is a financial term used by lenders like Braid Finance to determine the ratio between the amount of the loan and the value of the car being financed. It’s a key factor in assessing the risk of the loan and determining loan terms.

LVR is calculated by dividing the loan amount by the value of the car and then multiplying by 100. For example, if you’re borrowing $15,000 for a car worth $20,000, the LVR would be 15,000/20,000 × 100= 75% 

A lower LVR is seen as less risky by lenders and can result in more favorable loan conditions, such as lower interest rates and better terms. It indicates that the borrower has more equity in the car from the outset.

Yes, it’s possible to get a car loan with a high LVR, but it generally comes with higher interest rates and stricter loan terms. This is because a high LVR represents a higher risk to the lender.

A larger down payment decreases the loan amount, thereby reducing the LVR. For instance, a $5,000 down payment on a $20,000 car lowers the loan amount to $15,000, reducing the LVR and potentially improving loan terms.

If the market value of the car decreases, the LVR increases, signaling a higher risk. Conversely, if the car’s value increases, the LVR decreases. This can impact refinancing options and loan terms.

You can lower your LVR by making larger or additional payments on the loan principal, thereby reducing the loan balance faster. This increases your equity in the car and decreases the LVR

Yes, LVR considerations can differ. New cars often have higher LVR limits due to their higher initial value and more predictable depreciation. Used cars might have lower LVR limits due to their potentially unpredictable resale value and depreciation.

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