Credit Lingo

Glossary of credit terms

Term

Loan-to-value

Definition

The loan-to-value ratio is the ratio of money borrowed to the value of the item purchased (for example, $80,000 borrowed to pay for a $100,000 condo is a loan-to-value ratio of 80%). This ratio helps lenders assess the default risk of a borrower; the higher the ratio, the higher the likelihood of the lender having to absorb a loss if a borrower defaults.