LTV Ratio, Borrower Risk Levels and Financial Stability
As has been earlier explained in the previous blog articles, the initial LTV ratio has to be 50% or higher to be eligible to apply for a crypto-secured loan. Essentially, collateral is needed to protect a lender from various financial risks including, but not limited to, borrower’s failure to repay the loan, market volatility or default, among other things.
If the LTV ratio increases, then the lending process becomes risky and the borrower can lose his pledged collateral. Factually, P2P lending platform LendaBit.com has developed and employed the following gradation table of risks associated with borrower’s insufficient creditworthiness and reliability. Here it is:
LTV Ratio and Borrower Risk Levels
|Low LTV ratio is the best indicator to the borrower. It means that the borrower takes the lending process seriously, indicating his reliability and stability.|
|Middle LTV ratio designates that there are certain problems (exchange rate fluctuations) faced by the borrower and it is recommended to equalize the LTV ratio to 50%.|
|The higher the LTV ratio, the riskier the loan to the borrower.|
|When the loan deal LTV ratio amounts to 80%, it means that it is the maximum permissible indicator for borrower’s pledged collateral. If LTV levels up 85%, a “margin call” will be triggered. Margin call is a request to provide additional collateral, thus reaching the required 50% LTV ratio is critical.|
This table demonstrates the risk levels associated with LTV variation. The borrower has to duly keep abreast of the current LTV ratio and avoid its upsurge to ensure flawless reputation. In case of a loan default (failure to repay the loan according to the agreed terms and conditions), the pledged collateral amount will be automatically transferred to the lender’s wallet balance. As such, collateral protects the lender and his investments if the borrower defaults.
Borrowers are able to choose preferred LTV ratio (50%-80%) by using the “Make a Loan Request” option.
Conversely, lenders can select preferred LTV ratio (50%-80%) by making use of the “Make a Loan Offer” option.
By doing so, LendaBit.com creates a seamless user experience that increases convenience and satisfaction for all users.
Starting from the very inception of LendaBit.com, Alex Maznyi has become an inseparable team player by strategizing and monitoring the development of the P2P lending platform. Alex has been in the finance management and risk assessment for about 10 years and he perfectly knows that blockchain and cryptocurrencies will eventually drive out the old-fashioned financial institutions and bureaucracy.