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The flexibility and convenience of cryptocurrency make it an ideal way to provide people with loans. If you're considering working with crypto loans, it's important to understand how loan-to-value (LTV) ratios work. This useful metric is a great way to determine whether or not a loan is risky. Explore this guide to learn more about LTV ratios and the mechanics behind them.
Key Takeaways:
A crypto loan is any type in which an individual borrows cryptocurrency tokens from a lender in exchange for collateral, which is forfeited if the borrower doesn’t pay back the loan within a certain amount of time.
Crypto loan-to-value (LTV) ratio is a helpful metric for assessing risk during a loan. It compares the value of the borrower’s collateral to the value of the loan.
A high LTV ratio means the loan is riskier for the lender, so the interest rate will be higher. A low LTV ratio means the risk is lower, so the borrower doesn't have to pay as much in interest.
Crypto loans are any type of loans in which a person borrows cryptocurrency tokens from a lender. Lenders typically require borrowers to stake some sort of asset as collateral for a loan. A borrower will forfeit the collateral if they don’t pay back the loan within a certain amount of time.