What is the maximum loan amount
The maximum loan amount, in the other words “a loan limit”, depends on the collateral value and the Bitcoin price. Thus, the more bitcoin collateral a user stores on their Biterest account balance, the large their loan limit is.
On Biterest, you can receive a much larger loan with the same amount of collateral than on other platforms. The reason is that the loan limit on Biterest is equal to 83% of the collateral value compared to other crypto lending services, where it does not exceed 50-70%.
Consider an example:
Collateral value: 1500 USD;
Loan limit on Biterest: 1250 USD (Loat-to-value 83%);
Loan limit on the other services: 750 (Loan-to-value 50%);
Why is it important to track the LTV ratio?
The LTV (loan-to-value) expresses the ratio between the received loan and the current balance value. When the used loan limit is $1200 and the collateral value is $1500, LTV is 80%. If you repay partly the loan and your used limit decreases to $800, LTV will become 53%.
You should take into account that Bitcoin is a highly volatile asset, so that its price can either sharply goes up or unexpectedly drops down. Therefore, the Biterest platform always updates your balance level and LTV ratio in accordance with the current Bitcoin value.
The two possible scenarios:
In the positive scenario, the Bitcoin exchange rate increases and the LTV decreases. Thanks to the rise in the Bitcoin price, the loan limit increases and you can get more funds in a loan without a need to add extra collateral.
Unfortunately, there is also an opposite situation, when the Bitcoin price decreases. This provoke an increase of the LTV ratio as the balance level declines. The balance cannot go down indefinitely, since its level is limited by the amount of the used loan limit. Therefore, this entails the risk of an automatic loan repayment — Margin Call occurrence.
Negative side: If nothing is done, LTV will exceed its critical level of 90% and Margin Call will occur. The loan will be paid off with the collateral from the balance.
Positive side: You can always top up your balance with extra collateral or partially repay the loan. This will reduce the LTV ratio and prevent Margin Call.