🏹What is Max Loan?
Last updated
Last updated
Max Loan is defined as the maximum loan a particular Lender offers against a collateral. This value is generally given in percentage of the asset value.
For example: If a Lender has defined 60% as the max loan that means, he will offer up to 60% of the collateral value as loan. If a borrower puts forth 1 BNB as collateral and if BNB is priced at 300 USDT, for example, the maximum loan he can take is 60% of 300 USDT, i.e. 180 USDT.
This is different from liquidation ratio, as explained in the previous section.
There are a couple of things to understand and know here.
Max Loan will always be lower than Liquidation Ratio by a fair margin, else as interest starts to accrue, the Liquidation process will be triggered. If someone has defined 80% as liquidation Ratio and 78% as Max Loan, going back to the same example as above, a borrower can take 78% of 300 USDT = 234 USDT as loan while the Liquidation Ratio looms large at 80% of 300 USDT = 240 USDT. It might be a matter of a few hours or a couple of days before the Liquidation is triggered by the accruing interests. Also consider, BNB price will fluctuate and a mere 2.5% fall in BNB price will trigger the Liquidation.
We have defined a minimum gap of 20% between Max Loan and Liquidation Ratio. So, as a Lender, if you are setting these values manually, please keep at least 20% gap in them. If you are setting Liquidation Ratio at 90%, you can't set Max Loan over 70%, for example
