Repaying Loans
Last updated
Last updated
Users must repay the loans they have taken using the same type of asset that they have borrowed.
For example, if you were to borrow USDC against ETH, you will need USDC to be repaid with interest included so that your collateral is free for withdrawal.
Here is how you repay your loans on Pinjam.
To repay loans on Pinjam, head over to the Reserve Overview page (which can be accessed by heading over to the Home Page and clicking the Details button available for each asset).
Click the More button as shown in the image below.
A drop-down menu will then pop up allowing you to select specific actions. Select Repay, insert your desired amount and click Repay.
Complete the necessary steps to complete the transaction on your preferred wallet to complete your loan repayment on Pinjam.
The interest rate paid by the borrower is very much dependent on how well an asset is being used, and this is subject to frequent changes.
The interest rate to borrow (on all existing loans) rises when more of an asset is borrowed, and it falls as utilization falls.
High-interest rates could encourage more deposits or loan repayments. Users can always view their borrowing interest on the Borrow Info section of the Reserve Overview page (as shown in the image below).
The Health Factor is a measure of the risk that some of your collateral will be seized to repay debt.
If the Health Factor is low, it means that there is a higher risk of liquidation. Liquidation is the process of selling off collateral in order to repay debt, and it can happen in chunks of up to 50% of the loan size at a time. If an asset has a high level of volatility, it is possible to see a partial liquidation.
For example, if an asset has a loan-to-value (LTV) ratio of 20% and the Health Factor goes to 1, this means that the entire position will be liquidated, leaving approximately 80% (minus any liquidation fees) of the collateral remaining.
On the other hand, if the Health Factor is high, it indicates that the position is safer and there is a lower risk of liquidation. One way to increase the Health Factor is to borrow a smaller amount relative to the maximum allowed for a particular asset.
You can view your Health Factor by heading over to the Dashboard Tab, where your lending/borrowing details will be displayed as shown.
Loans do not have a fixed term and can continue as long as the position is financially healthy. To ensure that the loan remains safe from liquidation, the value of the asset being used as collateral must increase at a faster rate than the interest rate on the loan and the value of the borrowed asset.
Interest rates on loans can vary based on the demand for borrowing and should be taken into account when evaluating the financial health of a position.
If the Health Factor of a position is approaching 1, users have the option to either add more collateral to the loan or repay the loan. Repayment can be done using external funds in the user's wallet.
Repaying a portion of the loan using external funds will result in a greater increase in the Health Factor than adding additional assets as collateral.
