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Yes, you can get an auto loan or auto loan refinance after bankruptcy, though it may be more challenging. While filing for bankruptcy may be the best decision for people in certain circumstances, it does come with long-term consequences. Both your finances and your credit score are likely to suffer.

Whether you’re just starting or are in the recovery process, it is best to learn about the options surrounding how to get an auto loan after bankruptcy.

Chapter 7 vs. Chapter 13 Bankruptcy

The type of bankruptcy you undertake can have a big effect on how your existing car is handled. Some people hesitate between debt settlement vs. bankruptcy. Once you’ve chosen bankruptcy, it’s important to pick the right kind.

How Chapter 7 Works

Chapter 7 bankruptcy, also called liquidation bankruptcy, poses the most risk to your vehicle because it involves liquidating your assets to pay your creditors.

Basically, to be eligible for a Chapter 7 bankruptcy, you must show that you can’t reasonably pay off your debts with your disposable income. At that point, your nonexempt property (which might include bank accounts, valuable jewelry, or a second car, among other things) may be sold to pay off your debts, though you will be allowed to keep certain necessities, which are classified as “exempt.” In some cases, you may be able to get an exemption to keep your car if you have some equity in it. Exemption rules vary by state.

How Chapter 13 Works

Chapter 13 is a reorganizing plan that lets you keep your car (and your house), but you’ll be on a court-ordered repayment plan for three to five years. To be eligible for Chapter 13 (also called a reorganization bankruptcy), you must have a regular income and you can’t owe more than a certain amount of debt (as of 2024, the limit is $465,275 in unsecured debt or $1,395,875 in secured debt).

No matter which option you choose, it’s advisable to speak with an attorney and get your questions answered about what to do before declaring bankruptcy.

Recommended: Refinance a Car After Divorce

How Does Bankruptcy Affect an Auto Loan?

You may be wondering how long after bankruptcy can you buy a car. Another question is what to do if you have a car, and a car loan, while you go through bankruptcy.

With a Chapter 7 bankruptcy, if you have a car loan (or your equity is considered nonexempt), then you have a few options. Because the loan is secured by the vehicle, you’ll need to keep up with your payments in order to keep the car. You may need to sign a reaffirmation agreement and outline your plan for affording the monthly payments.

Otherwise, you can either surrender the car or redeem it when you’re in Chapter 7. By surrendering, you remove your liability for the debt, but the car will be repossessed by your creditor. By redeeming your car, you agree to pay a lump sum of the car’s market value rather than the remaining loan amount — and you get to keep the car.

In a Chapter 13 bankruptcy, the court will appoint a trustee and you’ll make monthly payments as determined by the court’s payment plan to the trustee, who will make payments to your creditors. You can add your car loan to the repayment plan. This could give you a chance to catch up on any payments you may have missed leading up to your bankruptcy.

Bear in mind that if you decide to buy a car while you’re in a Chapter 13 bankruptcy, you will need to get the court’s permission.

Car Loans vs. Liens

A loan is not the same thing as a lien. If you are taking out a loan to purchase a car, a lender wants to make sure they are protected if you default. In order for them to receive that protection, they use car liens. The car you purchase has a lien on the title until you’ve completely paid off the car.

Considerations With Auto Loans After Bankruptcy

A major issue with a bankruptcy car loan is your credit score.

A chapter 7 bankruptcy stays on your credit report for 10 years, and a chapter 13 stays on it for seven years (since, in the latter case, you partially repay some of your debt).

Once the bankruptcy hits your credit report, your credit score could drop. Someone with a 680 score could lose between 130 and 150 points, while a person with a score of 780 might see their score drop between 200 and 240 points, depending on a number of variables, including your credit score prior to filing and how many accounts were included in the bankruptcy.

Can You Get a Car Loan During Bankruptcy?

Getting a car loan after bankruptcy can come with challenges beyond the impact to your credit score. Lenders generally view applicants with a bankruptcy as high-risk because there’s a history of non-payment to other creditors.

While there are lenders who focus on subprime borrowers, expect extremely high interest rates to compensate for the risk.

Pre-planning to Get Approved for a Car Loan After Bankruptcy

You can prepare yourself for applying for auto loans after bankruptcy in a number of ways.

4 Ideas That Could Help With Car Loan Approval After Bankruptcy

Here are four ideas to help your cause:

1. Rebuilding Credit First

One possible route is to start working to rebuild your credit as soon as possible.

Banks typically require a minimum credit score of 600 to give an auto loan without any down payment. However, it’s possible to buy a car with credit in the 500s — be aware the interest rate will most likely be high.

2. Finding a Cosigner

You could consider getting a cosigner with good credit, if possible. This does mean that your cosigner shares equal responsibility for the loan, but you’ll likely have better odds of getting approved.

3. Finding a Cheaper Car

It’s a good idea to keep your potential auto loan as low as possible. In addition to saving up for a sizable down payment, consider focusing on lower-priced vehicles as one way to potentially improve your chances of getting approved.

4. Wait and Save

Another strategy that may help you get approved for a car loan after bankruptcy is to save up for a large down payment. This lowers the lender’s risk and might therefore help lower your interest rate and your monthly payment.

Where to Find Auto Loans After Bankruptcy

There are many potential sources for after-bankruptcy auto loans. Comparing multiple auto loans after bankruptcy can help ensure that you’re getting the best deal possible for your financial situation. Lenders’ rates and terms can vary significantly, so take the time to shop around.

A local bank or credit union may have more flexible lending requirements to help you qualify, especially if you have a relationship with it already.

Beware of predatory lenders with exorbitant fees and interest rates. Financing companies that advertise “no credit check,” “guaranteed financing” and “buy here, pay here” are to be approached with caution.

Alternative to Auto Loan Bankruptcy

Voluntary Repossession

Surrendering your car is an option for a car loan in a Chapter 7 bankruptcy. Voluntary repossession is a course of action. If you surrender your car, your creditor will repossess the vehicle and the car loan balance, and any deficiency balance will be erased as part of your bankruptcy discharge.

Can You Refinance Your Car After Bankruptcy?

A bankruptcy can impact your ability to refinance an existing car loan just as it can affect taking out a new one since your credit history is a primary factor in both applications. That doesn’t mean it’s impossible to get approval for after bankruptcy car loans. And you may still be able to save on your interest rate.

Figuring out how to refinance an auto loan after bankruptcy involves many of the same challenges as buying a new car. Compare offers from online lenders and local financial institutions to find the best deal for you.

Refinancing a car can cost money, typically in the form of lender fees and title fees. While the amounts may not be huge (especially if you’re saving on interest), they can add up, especially if you try to refinance your car loan multiple times.

The Takeaway

It may be harder to get an auto loan after bankruptcy, but it doesn’t have to be impossible. And the process itself isn’t all that different from the one you would use if you hadn’t gone through a bankruptcy. Consider budgeting not only for a down payment, but also to look longer and harder for an acceptable interest rate. Use an auto loan calculator to see specifics.

Comparing auto loan refinancing rates after bankruptcy can help improve your odds of getting approved and help you find the best offer. You can use Lantern by SoFi to access multiple lender offers at once.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Can you get approved for an auto loan after applying for bankruptcy?

Yes, but typically the more time has passed since your bankruptcy, the better. This gives you time to work on rebuilding your credit, which can eventually help you get approved for more favorable terms. Additionally, the impact of bankruptcy on your credit score usually lessens over time with responsible financial decisions, even if it’s still listed on your report.

What do you need to do to qualify for an auto loan after bankruptcy?

A larger down payment can help you qualify for a car loan after bankruptcy. It may also be helpful to apply with a co-signer with a good credit score.

How hard is it to be approved for an auto loan after bankruptcy?

It can be difficult to get approved for an auto loan after bankruptcy, but not impossible. Look for lenders that specialize in working with borrowers who have a bankruptcy on their credit report. You can search online and also check with local banks and credit unions.

Should you refinance a car after bankruptcy?

Refinancing your car loan only makes sense if it will save you money in interest or help you afford the monthly payments to avoid default. When searching for refinance offers, evaluate the interest rate and fees, as well as the length of the term. A lower rate saves you money over the life of the loan, while a longer term lowers your monthly payment (although costs you more in interest over time).

Photo credit: iStock/Thai Noipho

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOALR-Q325-021

You can sell a car with a lien on it, though you may have to go through some extra steps, especially if you want to get the best deal. Selling a car can be a bit of a procedure under any circumstances, but it’s a bit more complicated if your car is still under lien (which is to say, if you still owe money on it).

Here’s everything you need to know about how to sell a car you haven’t paid off.

Can I Sell My Car if It Has a Lien?

Selling a car with a lien is possible, and one of the simplest ways to sell a car with a lien is to sell it to a dealership. A dealership is typically able to pay off your lienholder and handle the necessary title transfer to reflect the change of ownership.

Can you sell a car with a lien if you’re also carrying an upside down car loan? Yes, even if your outstanding loan balance is greater than the resale value of your car. To pull off this transaction, the buyer may ask that you pay the difference to eliminate your negative equity in the vehicle.

What Is a Car Lien?

A car lien is when you take out a car loan in which the lienholder, usually a bank, holds the title of your car as you pay off the amount you owe on it. This is considered a secured auto loan, since the bank may repossess your car if you fail to pay up.

In other words, a car lien gives the lienholder a safeguard in case you don’t pay. Once you do pay off your car loan, the lienholder will usually send a lien release document transferring the car title to you. A car lien functions as a security interest — it gives the lienholder the right to repossess your vehicle if you default and fail to repay the loan.

The way car loans work is a borrower buys a new or used vehicle with auto financing and agrees to repay the debt over time. Secured auto loan lenders may place a lien on your vehicle as part of the financing terms and conditions.

Keep in mind that a lien or car loan differs from a car lease. With a loan, at the end of the term, you own the car; with a lease, at the end of the term, you don’t. You’re simply paying for the privilege to drive it around.

Recommended: Determining a Car’s Value With a Salvage Title

Can You Sell a Car With a Lien on It?

As stated above, you can sell a car with a lien on it, but the active lien can make the transaction process a bit more complicated. That’s because if your car is still under lien, the lender, or lienholder, is still holding onto the title in case you fail to pay.

The loan needs to be paid in full in order for the title to be transferred. That means you’ll need to get enough money to pay for the loan entirely before you can officially sell the car to someone else.

The difficulty of this can vary depending on whether you’re hoping to sell your car to a dealership or on the private market. Selling a car to a dealership may be easier, but you’re likely to get less money for your car than you would with a private buyer.

Recommended: Why Are Loans Secured With Collateral?

5 Ways to Sell a Car With a Lien

If you have a loan balance on your car, the first thing you need to do in order to sell it is to determine the payoff quote, which isn’t the same as the balance you see reflected on your account. The payoff quote is usually higher than the account balance, because the lender has to factor in interest that’s been accrued since you last paid your auto loan; interest builds up every day.

Your payoff quote will be good for a set and limited amount of time, so be sure to pull it when you’re actually ready to sell your car, and not earlier. Additionally, you may want to revisit your payoff quote throughout the sales process to ensure your pricing is high enough to cover the amount — and remember, you’ll need to continue making your regular monthly payments in the meantime.

Here are five ways how to sell a car with a lien:

1. Sell to a Dealership

Once you have your payoff quote, things start to diverge depending on how you’re planning to sell the car. If you’re hoping to sell it to a dealership, matters might be a little simpler. Often a dealership is equipped to pay off the loan in full and handle the title transfer on its own.

However, this only works if the trade-in value of your vehicle is as much as, or higher than, the amount you owe. If you owe more than the car is worth — sometimes known as being upside down on a car loan — you’ll be required to pay the difference out of your own pocket.

2. Pay Off the Loan Before Selling

When exploring how to sell a vehicle with a lien, you may pay your car loan off early before selling it. Paying the auto loan off in full will give you full ownership of the vehicle. This can open the door to you selling your car without a lien.

3. The Buyer Pays Your Loan Off

A private buyer can pay your car loan off as part of the process of buying your car. This may not be as simple as selling to a dealership, but arranging for the buyer to pay off your car loan is another way you can sell a vehicle with a lien.

Selling to a private buyer can be a lot more lucrative than selling at the dealership. In many cases, a lienholder may accept a check directly from the buyer, especially if you’re able to go to a physical office together and explain the situation in person.

However, if you’re hoping to do more than just break even on the deal by having your buyer pay off the lien, you’ll need to arrange this with the buyer ahead of time as well, so they’ll know that some of the money is going directly to you and some is going to the lienholder.

Private party auto loans can provide consumers with financing to buy used vehicles from private sellers rather than dealerships. Banks, credit unions, or nonbank financial institutions may offer these loans.

4. Sell Through an Escrow

Another option for how to sell a car you haven’t paid off is to set up an escrow account, which will hold the buyer’s money until the loan is paid off and the title of the vehicle is transferred. An escrow account is a great way to ensure security on both sides, but setting one up does incur fees — which is another factor you and the buyer will have to negotiate on.

5. Sell at the Lender’s Office

When exploring how to sell a car with a lien, you may consider selling your vehicle to an interested buyer at the lienholder’s office. This may be the fastest way for you to pay off the auto loan and sell the vehicle.

Your lender or lienholder may have no security interest in the vehicle once you’ve repaid the auto loan debt in full. You can make arrangements at the lender’s office to satisfy the debt and sell the vehicle to an interested buyer who would become the owner of the used car. The title can be transferred into the buyer’s name once the auto loan is fully paid off.

How to Avoid Selling a Car With a Lien

While it’s possible to sell a car with a lien on it, if you’d rather not, here are some options to try:

Communicate With the Lienholder

Your lienholder is the party who is listed on the title of your car until it’s paid off, so if you’re hoping to sell it, keeping an open line of communication with them is a great first step. You may be able to work out something with the loan terms to help you pay off the car before you go through with the sale transaction.

There are different types of car titles, including the following:

•  Clean title: A clean title on a vehicle suggests that the vehicle doesn’t have a history of sustaining major damage. A rebuilt car may not have a clean title if the vehicle previously sustained major damage from a crash, fire, or flood.

•  Clear title: This is a title that has no lienholder on it. Having a clear title on your car means you are the sole owner of the vehicle with 100% equity in the car. It also means no other party has a security interest in your vehicle.

•  Lien title: As the name implies, a lien title has the lienholder’s name on it. Your lienholder may have possession of the title until you pay off your car loan.

Refinance the Car

If paying off the loan in its current form just isn’t a possibility for you, it may be worth looking into whether or not auto refinancing could help lower your car payment. You may pay more interest over the life of the loan if you refinance with an extended term.

Refinancing a car involves taking out a new loan, with different terms, that pays off the old loan — and which often spells lower monthly payments or less overall interest for you. Of course, there are many things to consider when refinancing a vehicle, such as your creditworthiness, the impact the refinance might have on your credit score, and details about the vehicle itself.

It can be more difficult to refinance a car with high mileage than a new one with less road time.

That said, refinancing can mean big savings and may make it easier for you to pay off the loan more quickly, so it’s worth looking into at the very least. Under certain circumstances, you may even be able to refinance your vehicle through the same lender, especially if your financial situation has significantly changed.

The Takeaway

While selling a car with a lien is possible, it can be a little trickier than selling a car you’ve already paid off. The level of effort you’ll need to extend may depend on whether you’re selling to a dealership or on the private market.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Can you sell a car with a lien?

Yes, you can sell a car with a lien. One way you can do this is by going to a dealership and offering to sell your vehicle. Often a dealership is equipped to pay off the loan in full and handle the title transfer on its own. Selling a car with a lien may not be right for you if you have an upside down auto loan. A car loan is considered upside down or underwater if the outstanding loan balance is greater than the appraised value of the car.

What is a lien release letter?

A lien release letter is a document from a lienholder indicating that the lienholder has no current security interest in the vehicle. A lienholder may deliver a lien release letter if and when a borrower pays off the auto loan in full.

Is it illegal to sell a car with a lien on it?

No, it’s not illegal to sell a car with a lien on it if appropriate steps are taken. If you’re selling a car with a lien, either you or the buyer may need to pay off the car loan in full. Any party can pay off the car loan as part of the process of selling a car with a lien on it. The title can be transferred into the buyer’s name once the auto loan is fully paid off.

Photo credit: iStock/Tony Studio

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-013

A fair credit score of 650 generally seems to be sufficient for getting a new or used car loan. Consumers with a 650 credit score are classified as near prime or nonprime. You might not qualify for the best annual percentage rates (APRs) with a 650 credit score, but you may qualify for auto loan refinancing.

Auto refinancing pays off your original car loan and replaces it with new lending terms. Refinancing may be right for you if you need a lower monthly payment or lower interest costs over the life of your loan. (You may pay more interest over the life of the loan if you refinance with an extended term.)

Below we highlight how lenders may view a 650 credit score for a car loan.

Is It Possible To Get a Car Loan With a 650 Credit Score?

Getting a car loan with a 650 credit score is possible and not unusual for consumers with fair credit.

A credit score according to the major credit scoring models, including VantageScore® 4.0 and base FICO® Scores, can range from 300 to 850. A 650 credit score can be considered near prime, nonprime, and fair. It’s possible to get a car loan with a 650 credit score, but most car loan borrowers had a “good” credit score, which would mean it was above 660.

Recommended: Does Refinancing a Car Hurt Your Credit?

What Is a 650 Credit Score?

A 650 credit score is generally fair and nonprime, as the table below shows:

How Do Lenders View a 650 Credit Score for a Car Loan?

Lenders may view a 650 credit score as creditworthy but not necessarily worthy of the best terms and conditions for a car loan. Borrowers with a 650 credit score may pay higher finance charges on a car loan than borrowers with prime or super prime credit scores.

Lenders may view a 650 credit score as being near prime, which is generally good enough for borrowers to qualify for financing.

650 Credit Score Auto Loan Interest Rates

As a consumer, you may wonder whether and when to finance an auto loan. Refinancing might be right for you if you can secure a lower interest rate or if you need a lower monthly payment.

Recommended: Refinancing a Car Loan With the Same Lender

650 Credit Score Car Loan Terms

The near-prime credit risk category includes consumers with a credit score at or near 650. Car loan terms can range from one year to more than 85 months, including 144-month car loans. Longer terms may include higher interest rates and lower monthly payments compared with shorter terms.

Factors That Affect Auto Refinancing Approval

Here are some factors that can impact auto refinancing approval:

Credit Score

Lenders of auto refinance loans may consider the credit score of the borrower when determining whether or not to approve a loan refinancing request. Some borrowers with bad credit may not qualify. There’s also a cost to refinance a car, and applying for auto refinancing can hurt your credit score if the lender conducts a hard inquiry credit pull.

Debt-to-income Ratio

Banks, credit unions, and nonbank financial institutions generally like to see a debt-to-income ratio below 36%. Borrowers with high DTIs may have a harder time getting approved for auto loan refinancing than borrowers with low DTIs. That’s because DTI ratios help lenders evaluate an applicant’s ability to manage existing debt and future loan payments.

Income

Lenders generally require borrowers to have a steady income to qualify for auto loan refinancing. Borrowers with an annual income below $18,000 may have difficulty getting approved.

650 Credit Score Car Loan Repayment Schedule

Consumers with a 650 credit score may qualify for auto loan terms ranging from a few years to more than 85 months.

Term length and APR can affect your loan repayment schedule in terms of how much you pay each month. For example, an 8.99% APR car loan of $37K with a five-year term would feature 60 fixed monthly payments of $767.88. Borrowers are expected to make on-time payments over the life of the loan.

Applying for a 650 Credit Score Car Loan

Consumers with fair credit scores can apply for car loan financing through banks, credit unions, nonbank financial institutions, or dealerships. A consumer with a 650 credit score may qualify for auto loan financing, but nonprime consumers usually don’t qualify for the best rates.

You can explore auto refinancing for a lower APR, although you may pay more interest over the life of the loan if you refinance with an extended term. How soon can you refinance an auto loan?

You may have the option to refinance almost immediately.

Recommended: Car Payment With a Credit Card

The Takeaway

A 650 credit score is better than subprime, but it’s still below the general threshold of good credit. Borrowers with fair credit scores may have access to near-prime car loans.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What is a good APR for a car with a 650 credit score?

A good APR is subjective. For a car loan, it’s one that’s better than the industry average.

Can you get a $40,000 car loan with a 650 credit score?

Yes, some lenders may offer $40,000 in auto loan financing to borrowers with fair credit scores of 650. The interest rates might not be as attractive as they would be with a good or excellent score.

Can you finance a car with a 640 credit score?

Yes, certain lenders may offer new and used car loan financing to borrowers with fair or bad credit.

Can I refinance my car loan with a credit score of 650?

Yes, you can refinance your auto loan with a credit score of 650. If borrowers with deep subprime credit scores can access used car financing, it’s clear that other borrowers with a 650 credit score can refinance auto loan debt.

Photo credit: iStock/Goran13

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-008

Your loan-to-value (LTV) ratio is one of the metrics auto lenders use to help them assess the risk of offering you a car loan or auto loan refinancing. You can calculate LTV for your car with this simple formula: LTV = (Loan amount/appraised value of asset) x 100. The result is expressed as a percentage.

The ratio helps lenders compare the size of the loan to the value of the car that secures it. As the size of a loan increases in relation to value, the LTV ratio goes up, which signifies that the lender is taking on more risk. That’s typically something they’re not eager to do.

Calculating LTV yourself can be an important tool to help you determine how easy or how hard it may be for you to secure a loan and whether you might need to make a down payment.

What Is a Loan-to-Value (LTV) Ratio?

A loan-to-value ratio is a comparison between how much you’re borrowing and the value of the asset that will be used as collateral for that loan. In the case of an auto loan, the LTV compares the amount of the loan and the value of the car that’s securing the loan.

LTV can be used for any secured debt and is a frequent metric for banks deciding whether to offer mortgages to potential homebuyers.

How to Calculate the LTV of Your Car

If you’re interested in calculating an LTV ratio for a car, first divide the amount of the loan by the appraised value of the vehicle. Then multiply the result by 100 to express the LTV as a percentage.

The formula to calculate LTV is: (Loan amount/appraised value of asset) x 100 = LTV

LTV Examples for New Car Buyers

Here’s an example of LTV: You borrow $45,000 from an auto lender to buy a $45,000 car. The LTV in this example would be ($45,000/$45,000) x 100, or 100%.

But perhaps you want to borrow more money than the car is worth — say you add the price protection products like mechanical breakdown protection. In that case, your LTV could be greater than 100%.

For example, if you borrow $47,000 to buy a $45,000 car, your LTV will be ($47,000/$45,000) x 100, or 104.44%.

However, if you’re able to pay for some of the car in cash, you may not need to borrow the full value. In that case, your LTV could be less than 100%. Say you make a $9,000 down payment and borrow $36,000 in auto loan financing to buy a $45,000 car, your LTV would be ($36,000/$45,000) x 100, or 80%.

Using a Combined LTV for More Than One Loan

A combined loan-to-value ratio (CLTV) is a metric most commonly used to measure how much outstanding debt there is against a home, including all liens and loans.

In some cases, a CLTV might be used for auto loans as well. For example, say you’re trying to refinance your auto loan, if you have an old auto loan and a personal loan taken out against the equity you’ve built up in your car, a new lender might use CLTV.

You can calculate CLTV ratios by adding up the total balance of all outstanding loans and dividing by the value of the vehicle.

You can find the value of a new or used vehicle by looking it up in Edmunds or the Kelley Blue Book

What Is a Good LTV Ratio?

Every lender will have its own rules about what LTV ratios are acceptable. But in general, an LTV of more than 115% may make it difficult to acquire a loan on a new vehicle.

Allowable LTVs may be slightly higher when refinancing a car, and lenders may offer loans with LTVs up to 125% for auto refi loans.

Lenders who allow loans over these limits may be stricter on some other requirements, such as asking for a higher credit score or a lower debt-to-income ratio, to offset some of the perceived risk of a higher LTV.

Why Do Lenders Use the LTV Ratio?

When lenders loan out money, they do so with the expectation that the borrower will pay back the loan. However, inevitably some borrowers will default on their loans, saddling the lender with their outstanding debt.

To protect themselves, lenders may require collateral that they can repossess and sell to recoup some of what the borrower owed if the borrower defaults on the loan.

In the case of auto loans, the vehicle itself typically serves as collateral. One might think the ability to sell the repossessed vehicle would cover the lender’s risk, yet this isn’t necessarily the case.

Cars can depreciate in value quickly, and lenders may not be able to cover all of their losses simply by seizing the car. The LTV ratio helps lenders determine how much risk they’re taking on if the borrower accepts the loan but fails to repay the debt.

Higher LTVs vs Lower LTVs

The higher the LTV, the more risk the lender is taking on, and the more money they might lose if the borrower fails to repay the car loan principal and any interest charges that may apply.

For example, if you have an LTV of 110% and you default on the loan, your lender is only going to be able to recoup 100% of the market value of the car at the time of default. At the very least, the extra 10% loan amount on top of the value of your vehicle represents the risk the lender is taking on.

Lenders typically set maximum LTVs in order to limit the amount of risk they expose themselves to.

What Is the Effect of LTV on Interest Rate?

Because a higher LTV means more risk for lenders, they will do what they can to offset that risk. One tactic they may use is charging higher finance charges on your loan. These higher rates mean a larger monthly payment for you, and you’ll pay more for your car over the life of the loan.

Making a larger down payment on a car can minimize your LTV ratio and reduce risk to the lender. You can negotiate for a lower interest rate, and lenders may offer a better rate if you secure a lower LTV.

The potential effect of LTV on interest rates is that lenders may offer a lower annual percentage rate (APR) on a car loan if you reduce your LTV with a larger down payment.

The Takeaway

LTV is an important metric that helps lenders assess their willingness to offer you a loan. But it’s also an important number for you to keep in mind to help ensure you receive the loan that works best for you.

A lower LTV can reduce the cost of refinancing and make it more likely that you’ll be offered a loan that you can afford.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What is an LTV ratio?

The LTV ratio is a metric that allows lenders to compare the amount of a collateralized loan to the value of the asset that secures the loan.

Why is the LTV ratio important?

The LTV ratio helps lenders determine how much risk they’re taking on—the higher the ratio, the greater the risk.

How do you calculate the LTV ratio for your car?

You can calculate LTV for your car with this simple formula: LTV = (Loan amount/appraised value of asset) x 100. The result is expressed as a percentage.

How do lenders use the LTV ratio?

Lenders look at the LTV ratio to help them determine how much risk they would be taking on if they offered you a secured loan product. They might offset some of that risk by requiring you to have a higher credit score, asking you to make a down payment, or by offering you higher interest rates.

Photo credit: iStock/sonmez

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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Even the most money-savvy person may have some false beliefs about money. Maybe you were raised with misconceptions about finances, such as investing is only for the very rich, or were given off-target advice from well-intentioned friends (telling you to always aim to buy a house vs. renting), for instance.

Incorrect beliefs about money can have a negative impact on how you manage your finances, potentially hindering your path to achieving your goals.

Why Debunking Money Myths Is Key to Financial Success

Being realistic about money can help you set reasonable financial goals and reach them in the short- and long-term. Whether you are feeling financially secure or are looking to better manage your finances, practicing healthy financial habits will serve you well in the long run.

That’s why debunking money myths is important. If you believe, for instance, that carrying lots of credit card debt is “normal,” you may not eliminate that monthly balance that’s dragging down your budget.

Here are some common misconceptions about money to avoid if you want to be financially fit.

10 Common Misconceptions About Money

Here, learn about popular money misconceptions and why it may be time to bust some financial myths.

1. You Need a Lot of Money to Start Investing

You do not need to be rich in order to invest: You can start investing with just a few dollars. The average stock market return is about 10% a year, as measured by the S&P 500 index. The S&P 500 Index return does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns. Investing has risks, and you’ll want to be comfortable with that notion and find investments that suit your risk tolerance.

Whatever you decide to do, investigate fees before you begin investing so you are prepared for any costs you will need to cover.

2. Budgeting Is Too Restrictive and Complicated

Regardless of how little or how much money you have, a budget is helpful for organizing your finances. If you feel budgeting is too restrictive and/or complicated, you probably just haven’t found the right budgeting method yet.

Making a budget could help you achieve financial stability. You need to budget so you can keep track of your spending, your debt, and your savings for future goals.

There are various techniques and tools (spreadsheets, journals, apps) for budgeting. One strategy is the 50/30/20 budget rule, in which 50% of your post-tax money goes towards necessary expenses (housing, food, utilities, and the like), 30% goes towards wants, and 20% is used for saving.

3. All Debt Is Bad Debt

According to Debt.org, 90% of American households have some kind of consumer debt. But keep in mind, not all debt is created equal. Some debt is considered good debt. Think about a mortgage: Once you’ve saved for a down payment, this financial product is typically a fairly low-interest loan that may help build your credit history (if managed responsibly) and also allows you to accrue equity in the home.

Bad debt, on the other hand, is high-interest debt, such as credit card debt, where interest rates are high and you aren’t building equity. Just because a lot of people may have this kind of debt doesn’t mean you should. It can snowball and keep you spending a chunk of money monthly that could otherwise be saved or invested.

4. A High Salary Automatically Makes You Wealthy

A common money misconception is that earning a high salary makes you wealthy. That is not necessarily true. People who earn a lot of money can spend a lot of it too. The key to building wealth is saving and investing your money so it can potentially grow over time. Even if you simply stash money in a high-yield savings account, compounding interest can help grow your wealth.

To look at it from another angle, say one person earns $50,000 a year, lives within their means, and saves and invests wisely. Then there’s a person who earns $500,000 but they own multiple houses, spend freely on luxuries, and haven’t yet gotten their act together in terms of saving and investing. The person who has the lower salary might actually be the wealthier of the two.

5. Buying a Home Is Always Better Than Renting

Buying a home is the quintessential American dream, but it’s not necessarily the right move for everyone. Whether to rent or buy ultimately depends on your personal situation and your aspirations.

You may have heard that renting is a waste of money, but it can provide flexibility for those who are not ready to buy a home or not interested in doing so. For instance, perhaps your work requires you to relocate often, or you only want to buy a house when your baby is older and you can pick the right school district. Maybe you’d rather pay off debt vs. save for a down payment. Or you just might not want the major expense of a mortgage, taxes, and home maintenance in your life. Whatever your situation may be, it’s important not to feel pressured into buying unless it’s the right move for you.

6. You Should Avoid Credit Cards to Stay Out of Debt

Using credit cards as a form of payment doesn’t mean you’ll go into debt. Spending more than you can afford to pay off what you owe, however, may put you on that path. If you use a credit card wisely and typically pay off the debt every month, this can be a factor that helps you build credit. It also keeps you from paying high credit card interest, which averages 24.35% as of July 2025.

However, if you are a person who tends to spend impulsively and not pay your credit card bill on time, this could negatively affect your credit score. This is why it’s important to manage your purchases and pay your credit card bills on time.

7. Saving for Retirement Can Wait Until You’re Older

This can be a dangerous myth to believe. If you are young and are investing for your retirement, you have time on your side. Your invested money can grow over time thanks to compounding returns. Here’s an example: If a 25-year-old invests $200 a month and earns a 6% return, they’ll have $393,700 by age 65. But if that same person starts saving at age 35, that same money at the same rate nets them $201,100, or about half of what they’d have if they started sooner.

It may feel as if retirement is a long way away, but the sooner you begin funding it, the more you are likely to have. If your employer offers a 401(k) plan, take advantage of contributing to it. If this isn’t offered at your place of work, you can open an individual retirement account (IRA) or a Roth IRA.

8. Talking About Money Is Taboo

Talking about money issues may seem like taboo, but it shouldn’t be. It can be healthy to talk about money troubles to close family and friends, because they may have ideas about how to approach a solution. Perhaps they experienced a similar issue in the past and can offer advice on how they handled it.

If you find it uncomfortable to talk to family or friends about your money concerns, you might want to consider speaking to a professional. For instance, there are non-profit credit counseling organizations, like the National Foundation for Credit Counseling that could help you if you are burdened with debt and feel overwhelmed.

9. More Money Will Solve All Your Problems

Yes, money can help take care of bills, but the old adage, “More money, more problems” may well be true, too. The secret to being financially secure is not about how much money you make, it’s about how well you manage it.

For instance, say you take a new job that pays twice your current salary. If you turn around and buy a pricier home and car and book some luxury vacations, you might be in more debt and experience more stress than before. The way to prevent this is by not living beyond your means.

Healthy budgeting and saving habits (such as automating your savings) are what can help solve problems.

10. Financial Planning Is Only for the Rich

Financial planning isn’t only for those who have hefty savings accounts, net worth, or investment portfolios. Although it may not be taught in school, financial literacy is important for all, and setting money goals can help you achieve your dreams. Too many people just open a checking account and then ignore their money.

You might be more comfortable working with a financial professional, but you don’t need one to manage your money. It’s totally your choice. You might also see what tools and services your bank offers, and investigate third-party options.

Budgeting and Saving Myths Debunked

There are several myths about budgeting and saving that are worth debunking. For instance, many people believe living on a budget is hard, complicated, time-consuming, and all about deprivation.

Not true! The right budget can help you stay on track financially and achieve your goals. What’s important is to experiment with different budgets to find one that suits your needs. You might use technology, such as a savings calculator to help you along.

Also, it’s a financial myth that you need a lot of money to save effectively. Regardless of your income and expenses, budgeting well can allow you to start saving regularly. Small amounts of money can really add up over time.

Recommended: Savings Goal Calculator

Investing and Retirement Myths Debunked

Here’s what is a common misconception about finances: that you need a lot of money to invest. Anyone can invest well, even starting with a small amount, and robo-advisors can help automate the process for you. On the topic of investing, it’s also a misconception that you don’t have to think about retirement until later. You’re actually likely to save more effectively when you start early (again, even with small amounts) than if you put more money in for a shorter period of time.

Another myth is that you don’t need to save for retirement because you can live off Social Security payments. However, many people find that those payments are not enough when they reach retirement age, especially with rising healthcare costs.

Debt and Credit Card Myths Debunked

A debt myth is that all debt is bad. Some kinds of debt, such as mortgages, charge relatively low interest and allow you to build wealth. However, when it comes to credit cards, there are some myths to conquer. For example, some people may believe that they should only pay the minimum amount on their monthly bill. This amount is the bare minimum, and paying just that can wind up locking you into a debt trap, without building up funds in your bank account because you’re struggling to pay off your debt.

Mindset and Lifestyle Myths Debunked

A mindset and lifestyle myth about money to debunk is that making more money means you’re wealthy. It might be true, but if you allow your spending to rise with every raise at work or money windfall, you could wind up less wealthy than you were before.

This is considered lifestyle creep. An example is when you get a new job and earn more, you go out and, say, lease a luxury car rather than putting the extra money into savings or investing. You live more lavishly, but you could be shortchanging your future.

How to Develop a Health Money Mindset

To develop a healthy money mindset, it’s helpful to devote some time and energy to learning how to manage your money well. That could mean reading up on finances, listening to podcasts, or taking an online course.

Goal setting is important, too. By establishing your short-, medium, and long-term goals, you can begin working toward achieving them. Budgeting well and talking with trusted friends and relatives for advice can help you get on the right track. Automating your savings so money seamlessly gets transferred into a savings account can be a smart move, too. You might also work with a financial planner or a financial therapist to help you in your money journey.

The Takeaway

Myths about money can stand in the way of your making the most of your finances. By avoiding these misconceptions, you’ll be better able to take control of your cash, budget, save, and invest wisely. These moves can not only help you achieve your goals, they can enhance your peace of mind, too.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What is the biggest misconception people have about money?

There are many negative beliefs about money. Some include believing only rich people should invest their funds and that a person doesn’t need to think about retirement saving when they are young. These misconceptions can keep people from reaching their financial goals.

Is it true that you need money to make money?

While having money can help you make money, it’s not a requirement. By budgeting well and saving regularly (even small amounts), you can work toward generating wealth. A person who makes $50,000 could be wealthier than one who makes a multiple of that if they manage their money more wisely.

Why is it so hard to talk about personal finances?

It can be hard to talk about personal finances because many people are raised with the belief that one should never discuss money. It’s a myth about money that it’s a taboo topic. Unfortunately, this secrecy leads people not to share information that could help one another manage money better. Also, typically financial management skills aren’t taught in school, so many people clam up about the topic since they feel ignorant about it.

What’s a simple first step to fix my money mindset?

Often, the simple first step to fix your money mindset is to think about and recognize your attitudes. Do online research about money management and talk to friends whose money management you respect. Look at the interest rates on your credit card and student loans, try budgeting apps, and take other small steps that begin to put you in the driver’s seat financially rather than believing prevailing wisdom.

Maybe you think that there’s no point saving for retirement until you’re older or that investing is only for the rich. By being honest about your beliefs and then working to educate yourself and take steps toward financial management, you can fix your money mindset.

Is carrying a small credit card balance good for my score?

If you’ve wondered about what are some common money misconceptions, this is one! Carrying a balance doesn’t build your credit score. Among the habits that help maintain and build your credit score are always paying your card on time and keeping your credit utilization ratio (your balance vs. your credit limit) as low as possible. Under 30%, if not under 10%, is considered a good level.

Photo credit: iStock/baona

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*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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