Loan-to-Value Ratio

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All About Loan-to-Value Ratio

What is a Loan-to-Value Ratio?

The loan-to-valueratio is the ratio of the amount of money that a bank lends to the customer to the value of the collateral. It also matters that what kind of collateral you are using to get a loan. If the market value of your property is more then you can get a high amount of loan on the other hand if the market value of your loan is low then you won’t be able to get that much amount of loan. 

  • Real estate property

You can use any of your real estate property as collateral. If it is occupied and in improved condition then you will get 75% of its appraised value. On the other hand, if the property is improved but not occupied then you will get its 50% appraised value.

  • Inventory

Loan-to-Value Ratio

  A bank can give 60% to 80% value of the retail inventory. It can include component parts and unfinished material. It can be 30% value of the inventory. It depends that how quickly the inventory can be sold.

  • Stocks

You can also use marketable stocks as collateral.  You can use 75% of their market value as the amount of loan. But you can’t use this amount of loan to purchase stocks again.

  • Equipment

You can use equipment too as collateral. Bank will provide you the 75% of their purchase value. But in case the equipment is used for access than the bank will provide the loan after its valuation. For example, you are using a car as collateral and it is used very much then it is not sure that you will get 75% of its purchase value. The amount of loan would depend on its valuation. It can be less than 75%.

These are some examples of loan-to-value ratio of some collateral.

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