7 mins read 
Key takeaways
- Your loan-to-value ratio, or LTV, compares what you owe on your car loan with what your car is worth.
- A lower LTV may improve your chance of qualifying for auto refinancing.
- Your LTV can change as you pay down your loan and as your car’s market value rises or falls.
- The best time to refinance may be when your loan balance has dropped and your car still holds enough value.
- Seasonality can play a role because used-car values may be stronger during certain times of year.
When you refinance a car loan, lenders don’t just look at your credit or income. They also look at the car itself.
One important number is your loan-to-value ratio, often called LTV. It compares your current loan balance with your car’s estimated value.
For example, if you owe $18,000 and your car is worth $20,000, your LTV is 90%. If you owe $22,000 and the car is worth $20,000, your LTV is 110%.
In general, a lower LTV is better. It means you owe less compared with what the car is worth. A higher LTV can make refinancing harder because the lender is taking on more risk.
Why LTV can affect the best time to refinance
The best time to refinance a car loan isn’t always just when rates drop. It may also be when your LTV is in a stronger position.
That can happen when:
- You’ve paid down enough of your loan balance.
- Your car has held its value better than expected.
- Used-car demand is strong.
- Your vehicle’s mileage is still within a lender’s limits.
- You’re not too far upside down on the loan.
This is why timing matters. Your loan balance usually goes down each month, but your car’s value can move up or down depending on mileage, age, condition and the used-car market.
If you’re not sure whether your vehicle still fits lender requirements, it may help to look at how mileage can affect your ability to refinance a car before you apply.
How to calculate your car’s LTV
You can estimate your LTV with this formula:
Loan balance ÷ car value × 100 = LTV
Here’s a simple example:
| Current loan balance | Estimated car value | LTV |
|---|---|---|
| $16,000 | $20,000 | 80% |
| $20,000 | $20,000 | 100% |
| $24,000 | $20,000 | 120% |
An LTV under 100% means you owe less than the car is worth. An LTV over 100% means you owe more than the car is worth, which is also called being upside down or having negative equity.
If your LTV is high, you may still have options, but it’s worth understanding how to get rid of negative equity on your auto loan before deciding whether now is the right time to refinance.
When your LTV may be strongest
Your LTV may improve over time as you make payments. But there are a few moments when it may be especially worth checking.
After you’ve made consistent payments
If you’ve had your loan for several months and made on-time payments, your balance may be lower than it was when you first financed the car. That can help your LTV, especially if your car hasn’t lost value quickly.
If your loan is still fairly new, timing matters. You can refinance soon after buying a car in some cases, but waiting a little may give your loan balance and credit profile time to improve. Here’s more on how soon you can refinance a car loan after purchase.
When used-car values are holding steady
If used-car values are strong, your car may be worth more than you expected. That can lower your LTV and potentially make refinancing easier.
This is where seasonality can matter. Used-car demand may rise during certain parts of the year, especially when tax refund season, spring shopping and summer travel plans bring more buyers into the market. If your car’s value gets a temporary lift while your loan balance keeps dropping, your LTV may look better.
Before your mileage gets too high
Mileage affects vehicle value. The more miles you add, the more your car may depreciate. Some lenders also have mileage limits for refinancing.
That doesn’t mean you need to rush, but if your car is getting close to a mileage threshold, it may be worth checking your options before its value drops further.
Before you’re too close to the end of the loan
Refinancing late in your loan may not save much because you’ve already paid a lot of the interest. Even if your LTV is strong, the savings may be limited.
If your main goal is to save on interest, you may want to compare refinancing with other ways to pay off your car loan faster.
What if your LTV is too high?
A high LTV doesn’t automatically mean you can’t refinance, but it can limit your options.
If you owe more than your car is worth, you may want to:
- Make extra payments toward the principal.
- Wait for your balance to drop.
- Avoid rolling more debt into the loan.
- Check your car’s current value before applying.
- Compare offers carefully if a lender is willing to refinance.
Be careful about focusing only on the monthly payment. A lower payment can help your budget, but if it comes from stretching the loan term, you could pay more interest over time. If your payment is the bigger issue, it may help to compare refinancing with other options for when your car payment is too high.
LTV matters, but it’s not the only factor
LTV is important, but lenders usually look at the full picture. That may include your credit score, income, debt-to-income ratio, payment history, car age, mileage and remaining loan balance.
So, the best time to refinance is usually when several things are working in your favor: your loan balance is lower, your car still has enough value, your credit profile is steady or improving and the new loan could actually save you money.
If your credit has changed since you first got your loan, it’s also worth understanding how your credit score affects your auto loan rate.
Bottom line
The best time to refinance a car loan may be when your LTV is in a stronger position, meaning your car is worth enough compared with what you still owe.
That could happen after you’ve paid down your loan, while used-car values are strong or before mileage and depreciation lower your car’s value too much. LTV won’t be the only thing a lender considers, but it can play a big role in whether refinancing makes sense.
Before you apply, check your loan balance, estimate your car’s value and compare potential savings. Caribou’s auto refinance calculator can help you see whether a new loan could lower your payment or reduce your total interest.
FAQs: Why LTV matters for car refinance
What is a good LTV for refinancing a car?
A lower LTV is generally better. An LTV under 100% means you owe less than the car is worth, which may make refinancing easier. Some lenders may still consider higher LTVs, but your options may be more limited.
Does LTV affect refinance approval?
Yes. LTV can affect whether you qualify and what terms you’re offered. If you owe much more than the car is worth, a lender may see the loan as riskier.
Is spring a good time to refinance a car?
It can be. Used-car demand may be stronger in spring and early summer, which could help your car’s value. But the best time depends on your loan balance, car value, credit profile and available refinance offers.
Can I refinance if I owe more than my car is worth?
Possibly, but it may be harder. If your LTV is above 100%, you may have fewer offers or less favorable terms. Paying down the balance or waiting until your LTV improves may help.
Should I refinance just because my car value went up?
Not automatically. A higher car value may improve your LTV, but you’ll still want to compare the new APR, monthly payment, loan term, fees and total interest before deciding.
