> For the complete documentation index, see [llms.txt](https://docs.snowballfi.app/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.snowballfi.app/documentation/protocol-mechanics/loans.md).

# Loans

## Borrowing: <a href="#borrowing" id="borrowing"></a>

* **Mechanism:** Users can borrow $AVAX using $SNOW as collateral.
* **Loan Terms:**
  * **Collateral Requirement:** Users can borrow up to 99% of their `$SNOW` value in `$AVAX` (99% Loan-to-Value Ratio).
  * **Duration:** Minimum 1 day, Maximum 365 days.
  * **Interest:** Interest rates are calculated on a linear scale with a base rate of 0.05%. Interest is collected up front, or upon initiation of a loan, from the borrowed amount.
  * **Liquidation:** If a loan defaults, then the `$SNOW` collateral is burned. Since loans are over-collateralized, burning the collateral causes the ratio of `$AVAX` per `$SNOW` to increase. `$SNOW` collateral from liquidated positions are burned collectively, every day, at 00:00 UTC.

{% hint style="warning" %}
You can only have one active loan position in Snowball. If you have a standard loan, you must repay it before opening a looped position — and vice versa.
{% endhint %}

<figure><img src="/files/2N4bpu9JQSEhIgYvbuRc" alt=""><figcaption></figcaption></figure>

\*Loans can taken with a `99%` LTV. Interest is paid upon initiation of the loan, and is deducted from the total borrowed amount. `65%` of fee increases $SNOW backing.

{% hint style="success" %}
The maximum loan amount is based on the AVAX backing of $SNOW and the protocol-defined ratio — not market price. Loans can't be liquidated by price movement; collateral is only lost if the loan isn’t repaid on time.
{% endhint %}

***

## Liquidation Example:

Assume there are 100 `$SNOW` in circulation, backed by 100 `$AVAX`. User A holds 60 `$SNOW` and User B holds 40 `$SNOW`.

User A opens a 99% LTV loan, using their 60 `$SNOW` as collateral to borrow 59.4 `$AVAX`. They select a loan term (1–365 days) but fail to repay on time.

The position is liquidated:

* 59.6 $`$SNOW` is burned
* 0.4 `$SNOW` is sent to PoL bribes and treasury

Now, only 40 `$SNOW` remain in circulation (held by User B), but the total `$AVAX` backing increases from:

* The 1% collateral premium
* 65% of the interest fee

As a result, the backing per `$SNOW` increases, and User B benefits with each `$SNOW` now being worth more `$AVAX`.


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