Loan to Value (LTV) Explained
The loan to value ratio (LTV) is a figure, usually expressed as a percentage, derived from the full value of the object or property being bought and the deposit. So if you are buying something worth £1000, and you have £200 for a deposit, you will need a loan of £800; the LTV in this case would be £800 divided by £1000, which is 0.8, or, as a percentage, 80%. If you can put down £400 as a deposit, the LTV would be 60%.
Why is loan to value important?
When lenders lend money, they must assess the risk that the borrower will not pay back the loan. The higher the deposit, the greater the odds are that the customer is financially sound, and the lower the risk of non-payment. Lenders who offer 100% LTV loans (i.e. where there is no deposit) usually require stronger proof of earnings and will need to check things like bad credit scores and have more rigid identity checks.
Why is the value of the property sometimes independently assessed?
If a customer fails to pay back the loan, whether this is innocently (say, if she loses her job or has a long period of sickness) or maliciously (for example if he simply chooses not to pay even though he can afford it), the lender might try to recover the property and sell it on to recover the borrowed amount. If a car loan for £6000 is taken out, but the car is worth only £2000, the loan company will be severely out of pocket if the borrower defaults. This is why the item being borrowed for must be specified and its resale value calculated.
Are you entitled to the best value deal?
You have probably noticed that interest rates on loans vary widely. So when you start your search you'll probably go looking for a loan at the lowest rate of interest rate you've seen. But in fact the best interest rate you'll be offered will be largely determined by your personal financial circumstances. These circumstances allow the finance companies to take a view on the risk involved in lending money to you. There's not a lot you can do about these factors, but you can still search around to find the best value deal. We're taking about secured loans here and in particular bad credit secured loans, so they may not be the cheapest you've seen advertised, but still well worth looking around for. This is where we can help. By doing all the searching around for you, we can quickly offer you a range of deals for you to select from, giving you a fast track route to your own best value loan.
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