Loan to Value Ratio (LTV): What is it and Why it Matters

Sep 2, 2020
loan to value ratio

YouHodler loves to calmly brag about our “industry best loan to value ratio of 90%.” Just look around, you’ll see it everywhere. However, that phrase means nothing to people who don’t understand what an LTV is. Well, worry no more because today, we’re going to cover everything from top to bottom regarding LTV and explain why it matters so much for your HODLing activities. 

Loan to value ratio: the basics

Whether you’re looking for a crypto-backed loan on YouHodler, a mortgage for your new house, or a personal bank loan to buy a car, you’ll come across loan to value ratios everywhere. Simply put, a loan to value ratio tells the borrower how much money they will get in relation to the value of the asset that secures the loan. 

In traditional finance, factors such as the size of your income, your credit score, and your chosen monthly payment structure can all influence the size of the LTV. However, since YouHodler doesn’t perform credit checks, background checks, or anything like that, we let the borrower decide which LTV they want to take advantage of. We have three different options, all with unique benefits.

Loan to value ratio: which loan plan is best for you?

YouHodler's industry best 90% LTV

At YouHodler, there are three different loan plans with different options loan to value ratios. These are the following:

Loan #1

LTV: 90%

Duration: 30 days

Loan fee: 1.70%

Price Down Limit: - 5%
Loan #2

LTV: 70%

Duration: 60 days

Loan fee: 2.90%

Price down limit: - 25%

Loan #3

LTV: 50%

Duration: 180 days

Loan fee: 7.50%

Price down limit: -40%

As you can see, there are a variety of pros/cons to the different loan plans. With a loan to value ratio of 90%, the most obvious benefit is that the borrower gets the most value from their collateral. For example, if they put down 1 BTC as collateral (e.g. $10,000) then YouHodler gives them a loan of $9,000. That being said, a 90% LTV also comes with more risk.

If the value of that 1 BTC drops more than 5% during the loan term, then YouHodler is forced to sell the collateral to avoid loss and close the loan. So one must first carefully measure the risk before deciding which loan plan is best. Loan #2 and #3 have less risk in regards to the Price Down Limit levels but they also come with more expensive loan fees and borrowers get less money for their collateral. Nevertheless, each loan has its place in time in the crypto world. The borrower just needs to decide when to use them.

Loan to value ratio: how to use a crypto loan to profit

Getting a loan is not just about borrowing money to pay off a debt or buy a large purchase you can’t afford. Loans are strategic instruments used by professional traders every single day. At the most basic level, YouHoder clients take crypto loans to help them get more capital for buying crypto without selling their favorite assets. 

One example if using BTC as collateral to get a USD loan which is then used to buy BTC or another crypto during a market correction. By buying the tip, the user buys crypto at a cheaper price and profits when the price increases later. All this is done without having to sell any crypto, thus, constantly increasing the value of one’s portfolio throughout time. 

From there, one can engage in more complicated crypto lending strategies like the “chain of loans” principle that involves using many loans as leverage to buy larger amounts of crypto. Thankfully, YouHodler made these once complicated processes easy with our automated tools like Turbocharge and MultiHODL.

Before, users were at the mercy of banks to decide how much money they could borrow. At YouHodler, we put the power in your hands, letting you choose your own risk, your own loan to value ratio, and your own unique way of benefiting from a loan. 

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