There are many factors to consider when choosing the best loan provider but it should all start with LTV. LTV is the backbone of your loan since it dictates how much cash one will get for their assets. So let’s do a deep dive on the true meaning of LTV and compare a few organizations that do it best (and a few that don’t).
Loan-to-value ratio explained
In the case of cryptocurrencies, LTV is defined by the ratio of the size of one’s loan to the value of the loan seeker’s collateral. This number is calculated as follows:
The amount borrowed from a lender
————————————————————- = LTV (%)
the total value of the borrower’s collateral
To give an example, if one wants to borrow $70,000 for land worth $100,000, then the LTV would be calculated as 70,000/100,000, making it 70% LTV. The higher the LTV ratio is, the more money the lender must provide to the borrower. Of course, this also means the borrower has to pay back more to the lender but high LTV ratios ensure the borrower is getting more value for their collateralized assets.
Which crypto loan service has the best LTV?
Due to the volatile nature of the crypto market, many lending platforms issue LTV around 50% on average. This entails they do not have confidence in the market nor the confidence in the borrower to pay back higher amounts of loan. For example, Celsius, one of the world’s leading providers of crypto-backed loans only offers LTVs as low as 25% and as high as 50%.
Here are a few others:
BlockFi: 20% – 50%
BTC POP: 25%
Helio: 40% – 70%
SALT Lending: 30% – 70%
YouHodler: 55% – 90%
Here’s what you can do with a high LTV percentage
As evidenced by the list above, FinTech platform YouHodler has by far the highest LTV ratio compared to the others. Simply put, this means users on this platform have more opportunities to use more capital to obtain higher profit.
Let’s say a user wants to get a loan using BTC as collateral. For example 1 BTC = 10,000 USD. The client takes out a loan for 1 BTC with a 90% LTV and receives 9,000 USD in cash. The client then converts this fiat into BTC on YouHodler and then uses that BTC as collateral for a second loan. The chain of loans looks like this:
1st loan: 1 BTC
2nd loan: 0.864 BTC
3rd loan: 0.746496 BTC
4th loan: 0.644973 BTC
5th loan: 0.557257 BTC
In just a few quick steps, the user suddenly has 3.812726 BTC in collateral starting with just 1 BTC.
This is only possible because of the high, 90% LTV. This process could be replicated with LTV like 20% however, the profits would be smaller. Higher LTV means the borrower has more capital to us as leverage to further expand his or her portfolio. So next time you need a loan for any purpose, choose a high LTV that respects the value of your assets, giving you more control over your wealth generation.