This article was first published on SALT Lending Official Blog - Medium
Your collateral is what protects your loan. It’s why SALT doesn’t need to perform income checks or credit checks when issuing a loan. But cryptocurrencies are volatile, so what happens if the value of your collateral begins to fall? Declining collateral value negatively impacts your Loan-to Value-Ratio (LTV) — that is the amount of outstanding principal still owed on your loan divided by the value of your underlying collateral: Outstanding Principal / Value of Collateral. LTV is the key metric SALT uses to determine the health of a loan. The lower the LTV, the healthier the loan. If the value of your collateral goes up, your LTV goes down. If the value of your collateral goes down, your LTV goes up. It’s that simple.
Choosing your Loan-to-Value (LTV)
When choosing your LTV, the most important consideration is your risk tolerance. We offer starting LTV options of 30%, 40%, 50%, 60%, and 70%. If you go with a 30% LTV, you are choosing the safest level of overcollateralization, or cushion. With a 70% LTV, you won’t have to deposit as much crypto to begin with, but you’ll have the least amount of cushion. The higher the starting LTV, the higher the risk. Choose the LTV option that’s right for you.
What can you expect from us when your collateral declines in value and your LTV begins to rise? Lots of notifications.
If your collateral continues to go down in value, your LTV will steadily climb. As your LTV crosses certain critical thresholds (75%, 83%, 88%, and 90.91% as of the time of this writing) SALT’s robust monitoring and notification technology kicks in to help protect your loan.
- At 75%, we give you a heads up, letting you know to monitor your loan more closely given your collateral is declining in value.
- At 83%, we ...
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SALT Lending Official Blog - Medium