- What is the Loan to Value Ratio of secured loans such as Home Loans, Car Loans, Gold Loans, etc?
- Know about the Loan to Value Ratio of secured loans provided by different lenders
What is a Secured loan? Do I get upto 100% loan amount on availing a Secured Loan? What is the Loan-to-value (LTV) ratio of secured loans? These are some pretty common questions asked by individuals who are looking to fulfill their different financial needs via a loan facility. As evident from its name, a secured loan is a loan facility for which an individual needs to submit collateral or security to get the required loan amount. The type of collateral tends to change from one secured loan to another. For example, in the case of a car loan, your vehicle will serve as the collateral for your loan amount. There are so many secured loans such as Home Loan, Car Loan, Gold Loan, Loan Against Shares, Loan Against Mutual Funds, etc.
But there is an important thing in the case of all secured loans that people should keep in mind – Loan to Value Ratio. This ratio decides how much loan amount you would get when you opt for secured loans. It simply calculates the relationship between the loan amount and the overall market value of your asset. This asset can be a lien on the house, car, or gold depending on the type of loan you are taking.
So, in this article, we will be telling you about what exactly the Loan to Value ratio is and what is this ratio for different kinds of secured loans. This will help you at the time of availing these loans. Let’s keep reading.
Let’s Talk about Loan to Value Ratio in Detail!
In the case of any secured loan, Loan to Value Ratio (LTV) is one of the important criteria set by the lenders. So, it’s important to understand what exactly this is. Simply put, the Loan to value ratio is just a number by which lenders use to measure how much risk they are taking on with a secured loan. The main purpose of using LTV for a lender is to make sure that they do not lend a higher loan amount than the actual price of the collateral. The more loan amount lenders lend, the more risk they face, and LTV Ratio helps in the evaluation of that risk. Let’s know how the Loan to Value ratio is calculated.
To calculate the Loan to value ratio, you just need to divide the loan amount by the value of your asset (Collateral) and then multiply by 100.
For example, if you buying a home worth INR 30 lakh, and the lender is providing the loan amount of INR 27 lakh, your LTV will be (30/27)*100 equals to 90%.
Loan to Value Ratio of Home Loans
When we talk of the secured loans, Home Loans are certainly the most popular among the customers. The reason behind this is a large number of individuals who don’t have enough funds to purchase their own homes. Lenders provide the loan amount at affordable interest rates for a maximum tenure of 30 years. Home Loans are generally big-ticket purchases and, thus, Loan to Value Ratio (LTV) is one of the important factors determining your home loan eligibility.
In the case of a home loan, lenders usually provide the loan amount according to the property value. Here, the Loan to Value ratio ranges from as low as 75% to a maximum of 90% of the overall property value. Apart from this, there are a few factors such as the borrower’s relationship with the lender and type of loan schemes that also affect your home loan eligibility. We are showing you the LTV slabs in the table below so that you can get a clear understanding of the LTV given on Home Loans. Have a look!
|Loan Amount||Loan-to-value Ratio|
|Upto INR 30 lakh||90% of the Property Value|
|INR 30 lakh to INR 75 lakh||80% of the Property Value|
|Above 75 lakh||75% of the Property Value|
Let’s understand this through an example. Suppose that you want to opt for a loan amount of INR 25 lakh. The overall property value is INR 30 lakh. According to this, you can get a maximum of INR 27 lakh (90% of the INR 30 lakh) as the loan amount. You will need to fund the remaining INR 3 lakh from your own sources. This amount is known as the down payment amount.
So, it would be wiser to make a higher down payment initially so that you can opt for a smaller loan amount. The lower loan amount will also help you in getting lower interest rates, hence the interest outgo will be automatically low. Also, Home Loan LTV depends on the age of the applicant, credit score, and existing obligation of the applicant. The lender will also keep these factors in mind while deciding the suitable LTV for you.
Loan to Value Ratio of Gold Loans
Gold Loan is also one of the easy and quick methods to get the required funds at affordable interest rates. You only need to submit your gold ornaments and gold coins to the respective lender and you will get the gold loan at affordable interest rates.
When we talk about the Loan to Value (LTV) ratio in the case of Gold Loan, the loan amount mainly depends on the overall gold value. The LTV of Gold Loans usually ranges from 65% to 90% of your overall gold value across different lenders.
Let’s understand this through an example. Suppose the overall value of your gold is INR 8 lakh. Now, according to this, you can get a maximum loan amount of INR 7,20,000 with the minimum being INR 5,20,000. So, you can see how the loan amount changes according to the overall value of your gold. Before opting for a gold loan from any lender, you should make sure about the LTV ratio provided by the lender.
Loan to Value Ratio of Loan Against Life Insurance Policy
Do you know that you can also opt for a loan against Life Insurance Policy? Well, this is one of the secured loans about which a lot of people don’t know about. With this loan, an individual can opt for the loan amount at lower interest rates by putting their policy as the collateral. There is one thing that you need to remember that a loan is granted only against traditional insurance plans and not against the term insurance plans.
In the case of a Loan Against Life Insurance Policy, there has been a huge misconception about the LTV ratio that it depends on the overall value of the policy, which is not true at all. Here, the Loan to Value Ratio depends on the Surrender Value of your Policy. It is the value that a policyholder receives from the company if he or she exits the policy before the decided maturity.
The Loan to value ratio usually ranges from 80% to 90% of the total surrender value of the policy and not the overall value. Also, the surrender value tends to change at different periods of your policy. Suppose you have an insurance policy that will give you a total insurance amount of INR 30 lakh. At the time of requesting the loan, its surrender value is INR 12 lakh. So, based on it, you could get a loan amount of INR 9.6 lakh to a maximum of INR 10.8 lakh.
Here is the LTV ratio of Loan Against Life Insurance Policy from some of the top lenders. Have a look at the below table.
|Lenders||Loan to Value Ratio|
|Axis Bank||Upto 85% of the Total Surrender Policy Value|
|Kotak Mahindra Bank||Upto 90% of the Total Surrender Value of the Policy|
|HDFC Bank||Upto 80% of the Total Surrender Policy Value|
|IDBI Bank||Upto 85% of the Total Surrender Policy Value|
|Fullerton India||50% to 85% of the Surrender Policy Value|
Loan to Value Ratio of Loan Against Mutual Funds
In times of emergency, you can also opt for Loan Against Mutual Funds which could also be a good option to avail the required loan amount at affordable interest rates. With this secured loan, you don’t lose the ownership of your investment and could get the loan amount. Each mutual fund unit has a certain Net Asset Value (NAV) and the loan to value mainly depends on the NAV of the Mutual Fund Units.
If you are opting for a loan against Equity Mutual Fund Units, Loan to Value Ratio usually can be upto 50% of the NAV. While for Debt Mutual Fund units, this can be upto 70% to 85% of the NAV. Other than this, you should also keep in mind the minimum and maximum threshold set by the lender. We are presenting Loan to Value Ratio of loan against mutual funds provided by SBI and HDFC Bank in the table below.
|Lender||Loan to Value Ratio|
|State Bank of India (SBI)||Equity Funds - Upto 50% of the NAV (maximum of INR 20 lakh)|
Debt Funds - Upto 85% of the NAV (maximum of INR 5 crores)
|HDFC Bank||Equity Funds - Upto 50% of the NAV|
Debt Funds - Upto 80% of the NAV
|ICICI Bank||Upto 50% of the NAV (INR 50,000 to INR 5 crore)|
|IDBI Bank||Upto 50% of the NAV of the Equity Funds|
|Tata Capital||INR 50,000 to INR 20 crore|
|Bajaj Finserv||Upto INR 10 crore|
Loan to Value Ratio of Loan Against Fixed Deposits
You can also opt for the Loan against the Fixed Deposits at affordable interest rates. The interest rates will be 1% to 2% higher than the interest you earn on your fixed deposits. The tenure will be the same as your FD tenure. When it comes to the Loan to value ratio of this loan, it depends on your overall FD value. Usually, you can get upto 70% to 90% of the deposited amount.
In the below table, you can see the Loan to Value ratio of Loan against Fixed Deposits provided by some of the top lenders. Have a glance at them!
|Lenders||Loan to Value Ratio|
|State Bank of India (SBI)||Upto 90% of the value of Time Deposit (INR 25,000 to INR 5 crore)|
|Axis Bank||Upto 85% of the Value of your FD|
|Bajaj Finserv||Upto 75% of the FD Value|
|ICICI Bank||Upto 90% of the FD value|