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%. For users who are unfamiliar with collateral ratios, but familiar with the term loan-to-value: a collateral ratio of 150% is the same as a loan-to-value of 0.67.