Collateral Ratio

A Collateral Ratio measures the value of collateral in relation to the amount of a loan. A higher collateral ratio indicates a lower risk for the borrower. A loan with more collateral than the value of the loan is considered over-collateralized, which reduces the risk of Liquidation. The Collateral Ratio is calculated by dividing the value of the collateral by the amount of the loan. For example: a loan with a Collateral Value of $150 coupled with a Debt of $100, produces a Collateral Ratio of 150%.