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This guide explains the building blocks of asset-backed lending: how lenders value collateral, how loan-to-value caps are set, and what fees or custody arrangements change the true cost of credit.
Not all assets are equal in a lender’s eyes. High-liquidity items with transparent market prices—gold, exchange-traded securities, late‑model vehicles, or prime real estate—tend to attract higher loan‑to‑value (LTV) ratios. Niche assets or items with volatile pricing attract lower LTVs because valuation is harder and liquidation risk is higher. Lenders also care about custody. If the asset can be held in secure storage (vaulted gold, warehouse‑receipted goods), title and control are clearer, and the loan is safer for the lender.
The lender translates market value into lendable value by applying a haircut. If appraised value is €10,000 and the haircut is 40%, the maximum exposure is €6,000 (60% LTV). A buffer protects the lender against price swings, selling costs, and delays. Borrowers should compare not only headline LTV but also appraisal assumptions: how frequently is the price refreshed, which price sources are used, and what happens if volatility spikes?
Nominal interest is rarely the whole story. Origination fees, appraisal charges, custody and storage, insurance, and late or redemption fees all add up to the effective APR. A transparent lender will provide a full fee table and a worked example showing the cash you receive on day one, the running costs during the term, and the total to redeem. Keep a spreadsheet, and run a stress case where the asset’s price falls 10–20%—could you still repay on time?
Ask for a written offer that includes valuation method, LTV cap, all fees, and the redemption process. Confirm where and how the asset is stored, who pays insurance, and who is responsible for taxes or logistics. Read the default clause carefully: after how many missed payments can the lender liquidate the asset, and how is surplus or deficit handled? If anything is unclear, request clarification in writing before you sign.
Updated on 2025-10-21. Educational content only — not financial advice.