Loan-To-Value (LTV) Ratio

The loan-to-value (LTV) ratio expresses the loan’s relationship to the total value of collateral, usually as a percentage. In other words, the LTV is the loan balance divided by the value of the collateral asset. In traditional finance, lenders use a borrower’s credit score to determine creditworthiness. The borrowing process in a blockchain context can be carried out algorithmically via a blockchain collateral transfer. This usually eliminates the need for a credit check. The LTV ratio is calculated as follows:

LTV = LA (loan amount) ÷ CA (collateral amount)