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. for example, if you are using the unoccupied or unimproved property as a collateral then you can’t expect a big amount of loan on the other hand if you are using an occupied or improved real estate than you will get more amount on the same property. Let us discuss different collaterals and loan-to-value ratio given by the banks.

  • 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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