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Loan-to-Value (LTV) Explained

The Loan-to-Value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of the collateral. Otherwise said, the measurement of the balance of the loan relative to the value of the collateral asset is represented as Loan-to-Value (LTV).

Traditional lenders (e.g. banks) use your credit score, as reported by third-party credit agencies, to determine your creditworthiness. The higher your credit score, the lower the risk for the lender. To remove the credit score form the equation you can apply for an asset-backed loan like the one offered by Nexo. 

LTV is calculated as the loan amount in USD divided by the value of the collateral in USD, expressed as a percentage.

Example:

Loan amount: 5.000 USD;
Value of collateral: 10.000 USD;
Loan-to-Value = ($5.000/$10.000)*100% = 50.0%

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How Loan-to-Value fluctuates and what it means for you?

As the value of the collateral goes down, the Loan-to-Value goes up. In the case of a crypto asset-backed loan, the value of Bitcoin, Ether, Litecoin, Bitcoincash, etc. is trending down.

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If the price of the crypto asset falls too low, the Loan-to-Value will continue to increase. There is a threshold where the collateralized asset will start being sold by Nexo Oracle to pay back part of the loan in order to rebalance the Loan-to-Value. This threshold at Nexo is set at 83.3%. When the Loan-to-Value reaches 83.3% the Nexo Oracle will start initiating partial automatic loan repayments. Before that happens you will be notified via SMS and email.

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Example:

Loan amount: 5000 USD;
Value of collateral:
6 000 USD;
Loan-to-Value
= ($5000/$6000)*100% = 83.3%

As a borrower, you always have the option to transfer more collateral at any time.

To summarize:

The price of crypto assets fluctuates strongly - it can move up or down. When the price moves up, the Loan-to-Value goes down. When the price moves down, the Loan-to-Value goes up.

 

 

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