> ## Documentation Index
> Fetch the complete documentation index at: https://docs.arc.io/llms.txt
> Use this file to discover all available pages before exploring further.

# How loan health works

> How loan-to-value, health factor, health bands, and liquidation work for Borrow loans

Borrow loans are issued through an underlying lending protocol on Arc, and each
market sets a liquidation threshold. The App Kit SDK exposes your position's
distance from that threshold as a loan-to-value ratio (LTV) and a health factor,
grouping the health factor into bands you can act on before liquidation.

## Health fields

[Check loan state](/app-kit/howtos/borrow/monitor-a-loan#check-loan-state) to
see these health fields:

* `ltv`: the current [loan-to-value ratio](#loan-to-value-ratio-ltv)
* `healthFactor`: the current [health factor](#health-factor)
* `healthFactorBand`: the current [health factor band](#health-factor-bands)
* `liquidationPrice`: the cirBTC price at which the loan would cross into
  [`LIQUIDATABLE`](#liquidation)

## Loan-to-value ratio (LTV)

Loan-to-value ratio is the ratio of your outstanding debt to the current value
of your collateral, denominated in the borrowed asset. For example, a loan that
carries 3,000 USDC in debt against cirBTC worth 10,000 USDC has an LTV of
`0.30`. LTV rises as debt accrues interest, as the value of cirBTC falls, or
both.

## Health factor

Health factor is the inverse safety measure of LTV. It equals `LLTV / LTV`,
where `LLTV` (liquidation loan-to-value) is the market's liquidation threshold.

The health factor tells you how close a position is to liquidation:

* Above `1.0`: the position is not liquidatable.
* At `1.0`: the position is at the liquidation boundary.
* Below `1.0`: a third-party liquidator can repay part of the debt and seize
  collateral to bring the position back in line.

## Health factor bands

The health factor maps to five bands. Use the band to drive alerts and to gate
operations that would move the loan further toward liquidation.

| Band | Health factor | What it means |
| :- | :- | :- |
| `SAFE` | >= 1.20 | The position has ample buffer above liquidation. |
| `WARN` | 1.10 to \< 1.20 | The buffer is shrinking. Consider adding collateral. |
| `URGENT` | 1.05 to \< 1.10 | Small price movements can push the loan into liquidation. |
| `IMMINENT` | 1.00 to \< 1.05 | Liquidation is likely without a repayment. |
| `LIQUIDATABLE` | \< 1.00 | The position can be liquidated at any time. |

## Liquidation

When a loan crosses into `LIQUIDATABLE`, the underlying lending protocol lets a
liquidator repay part or all of the debt in exchange for the collateral at a
discount. Liquidation does not go through the SDK. It is a permissionless
protocol action.

Every position reports a `liquidationPrice`, the cirBTC price (denominated in
USDC) at which the loan would cross into `LIQUIDATABLE`. Show it to users so
they can act before the market reaches it.