How does higher loan-to-value (LTV) typically affect pricing and risk in secured lending?

• A. It increases risk and generally leads to higher pricing or additional collateral requirements
• B. It decreases risk and lowers pricing
• C. It has no impact on risk or pricing
• D. It only affects interest rate and not covenants

Answer: (B)

Higher LTV means the loan amount is large compared to the collateral value. When the collateral cushion is small, there’s less protection for the lender if the borrower defaults, so the potential loss is higher. Because of that greater risk, lenders typically raise pricing (higher interest rates or fees) and may require additional collateral or tighter covenants to mitigate the risk. In short, higher LTV pushes risk up and pricing up, not the opposite. The idea that it lowers risk or pricing isn’t consistent with how secured lending risk is evaluated, and it also doesn’t limit its influence to just interest rate—higher LTV can lead to stricter terms overall.