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Free tool for lenders

Collateral loan-to-value calculator

Check whether a borrower's security covers the loan, and what you would actually recover if you had to sell it.

The loan

Principal plus interest and fees. Exposure used: ZMW 48,000

Collateral offered

Haircuts are pre-filled by type. Change them to match the asset's condition and how fast you could sell it.

  • Item 01
    Type
    Market value
    Haircut
    Forced-sale valueZMW59,500
  • Item 02
    Type
    Market value
    Haircut
    Forced-sale valueZMW4,800
Total market value
ZMW 97,000
Total forced-sale value
ZMW 64,300

Lending policy

The most you will lend against the security.
Repossession, storage, auction and legal.
Apply the policy to
01 · Method

How loan-to-value is calculated

LTV compares what the borrower owes you with what the security is worth. Before you compare, cut the market value down to what a quick sale would actually fetch. That cut is the haircut, and what is left is the forced-sale value.

Forced-sale value
= Market value × (1 − haircut)
LTV
= Exposure ÷ Collateral value
Net recovery
= Forced-sale value × (1 − recovery costs)

Worked example

A borrower asks for ZMW 40,000 with ZMW 8,000 of interest and fees, and offers a car worth ZMW 85,000 and household goods worth ZMW 12,000. Your policy is 80% on forced-sale value, with 10% recovery costs.

Car: 85,000 × (1 − 0.30)
59,500
Household goods: 12,000 × (1 − 0.60)
4,800
Forced-sale value
64,300
LTV: 48,000 ÷ 64,300
74.7%
Net recovery: 64,300 × (1 − 0.10)
57,870

At 74.7% the loan sits inside the 80% limit, but close to it. If it went bad, a forced sale would clear the ZMW 48,000 owed and leave ZMW 9,870 for the borrower.

02 · Haircuts

Typical haircuts by collateral type

These are starting points. Raise the haircut for older assets, assets far from a market, or anything you can't take into your own custody.

Collateral typeTypical haircut
Cash deposit0%
Land / title deed25%
Motor vehicle30%
Business equipment40%
Livestock40%
Business stock50%
Phones / electronics55%
Household goods60%
OtherCase by case
03 · Questions

Questions lenders ask

What is a good LTV for a secured loan?

Most secured microlenders work between 50% and 80% on forced-sale value. Lower is safer. Only go near the top of that range when the asset is easy to sell and you can actually get hold of it: a registered vehicle with the logbook in your safe is not the same as household goods that stay in the borrower's home.

Should interest be included in the LTV?

If you would chase the full balance in a default, yes. Interest and fees are part of what you are owed, so measuring on principal alone makes the loan look safer than it is. Some lenders use principal at approval and total exposure for monitoring. The checkbox in the calculator lets you do either.

Why use forced-sale value instead of market value?

Market value assumes time and a willing buyer. When you repossess, you usually have neither. Forced-sale value is what the asset fetches when you need the money now, which makes it a much better guide to what you will actually bank.

What happens to any surplus after a collateral sale?

In most countries it belongs to the borrower. Once you have recovered the outstanding balance and reasonable recovery costs, the rest goes back to them, and you should keep a record of the sale, the costs and the amount returned. Check your loan agreement and local lending law for the exact rules.

These figures are estimates based on the values and percentages you enter. They don't replace a professional valuation, legal advice or your own credit policy.