How to Decide the Right LTV (Loan-to-Value) Based on Your Needs

Choosing the right loan-to-value ratio means balancing the amount you need to borrow with the long-term affordability of your repayments. This guide will help you understand LTV and walk you through the practical steps to select a ratio that aligns with your financial situation.

Steps to Decide the Right Loan-to-Value for You
 

Choosing a suitable LTV is a personal decision based on your financial health and goals. Here are some simple steps to guide you:

1. Understand the Loan-to-Value Ratio and Its Impact
An aspect that applies to secured loans like housing loans, gold loans, and vehicle loans, the LTV ratio represents the proportion of your asset’s value that a lender can finance. For instance, if your property is worth ₹10 million and you borrow ₹8 million, the LTV is 80%. A higher LTV means you borrow more against the asset and contribute less upfront, but it also increases your EMI and total interest outgo.

2. Assess Your Purpose and Urgency
Now, define why you need the loan and how urgently you need it. If it’s an emergency, a higher LTV might make sense, as it allows you to borrow more with a smaller down payment. However, for planned expenses, you have more flexibility to choose a lower LTV, which helps you manage your repayments better in the long run. Matching your LTV to your actual needs prevents borrowing too much, which can result in high EMIs.

Another consideration is the type of loan you’re opting for and the lender’s LTV cap, as per RBI guidelines. LTV caps differ by type of loan, and this can make a difference in your final LTV ratio. For instance:

Also Read: What is LTV in the case of LAP? How is it determined?

3. Evaluate Your Repayment Capacity
Use an EMI calculator to test different loan amounts, tenures, and interest rates before you finalise your LTV. A higher LTV directly increases your monthly EMI and total interest outgo, even when rates stay constant. 
It’s advised to keep your total EMIs within 30–40% of your net monthly income (FOIR benchmark).

4. Compare Different LTV Options
Use simple scenarios to compare how different LTVs affect your finances. For example, assuming a 10 lakh asset value, 5-year tenure, and an approximate interest rate of 15%:

Disclaimer: These figures are illustrative. Actual EMIs and interest costs depend on lender policies and prevailing interest rates.

While a 90% LTV reduces your upfront contribution, it significantly increases both your EMI and your lifetime interest costs compared to a 60% LTV. Lenders also price interest differently across LTV bands, so choosing a slightly lower ratio can help you negotiate better terms and improve your chances of sanction.

5. Align LTV with Your Overall Financial Health
Consider how your credit score and existing debts influence your LTV flexibility. When you have strong credit and low existing debt, you can comfortably manage a moderate-to-high loan-to-value ratio. However, if you have a weak credit profile, it’s advisable to focus on reducing unsecured debts first. Choose an LTV and tenure combination that allows you to make part-prepayments or early closure comfortably when your income rises or you receive bonuses.

Also Read: How to Reduce Your Loan Against Property Interest Rate?

To Conclude

The right loan-to-value ratio helps you borrow responsibly while keeping EMIs affordable and interest costs under control. By assessing your needs, repayment capacity, and overall financial health, you can choose an LTV that supports your long-term financial goals.

If you’re exploring secured loan options, you may consider trusted providers like Poonawalla Fincorp, whose Gold Loan offerings align with RBI’s LTV guidelines and provide flexibility for both urgent and planned needs.

FAQs

What is a good loan-to-value ratio for most borrowers?
A moderate LTV is often preferred, as it keeps EMIs manageable while leaving room for savings and other financial goals.

Does a higher loan-to-value ratio always lead to a higher interest rate?
Not always. While higher LTVs may carry more risk, interest rates also depend on your credit score, income stability, loan type, and lender policies.

Can I choose a lower LTV than what the lender offers?
Yes. Opting for a lower LTV reduces your loan amount, EMIs, and overall interest cost, and may also help you get better loan terms.

Do I need to calculate LTV for instant loans online?
This depends on the type of loan you’re opting for. Personal loan online being unsecured, you won’t have to worry about an LTV ratio. However, for instant gold loans online, you could look into the LTV ratio since it’s secured against your gold assets.