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What happens if the value of the collateral decreases during the loan term?

Curious about Collateral

What happens if the value of the collateral decreases during the loan term?

In case the value of the collateral decreases during the loan term, it may affect the loantovalue ratio (LTV) of the loan. If the LTV exceeds a certain limit, the lender may ask the borrower to provide additional collateral or may take other measures, such as increasing the interest rate or reducing the loan amount. In extreme cases, the lender may declare the loan as default and seize the collateral to recover the outstanding amount. Therefore, it is important to regularly monitor the value of the collateral and take steps to maintain its value, such as performing maintenance and repairs, to avoid any adverse consequences.

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