Collateral ratio provides the relative maximum amount that can be borrowed for a given collateral.

This ratio is an important factor to determines the safety of a loan. It is typically expressed as a percentage, and it represents the amount of collateral that a borrower has put up to secure a loan.

For example, if a borrower takes out a loan of $100 and puts up $120 worth of collateral, the collateral ratio would be 120%. In this case, this loan is over collateralized.

In the case where the collateral is worth less than the value of the borrowed amount, it is said that the loan is under collateralized.

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