High Ratio Loan

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High Ratio Loan

A loan in which the ratio of the amount of the loan is relatively high compared to the value of the asset securing it. For example, if the value of a bulldozer is $100,000 and the value of the loan a company uses to buy it is $98,000, the loan-to-value ratio is 98%, which is considered high. A high ratio loan indicates high risk to the lender because, if it forecloses or repossesses, it may not be able to sell the asset for enough money to compensate itself for the principal plus interest of the original loan.