What Happens When My Aave Health Factor Is Reduced?

Nothing happens straight away. When your Aave health factor is reduced, your loan carries on exactly as before: you keep your collateral, you keep the borrowed funds, and nobody is told. What shrinks is your margin for error - the distance between where you stand now and the point where a stranger can repay your debt and take your collateral.

Why did it go down?

Usually a price move. The health factor is your collateral, adjusted by Aave's risk settings, divided by what you owe, so a 10% fall in ETH cuts the top of that fraction by 10% and the number falls with it. Borrowing more does the same thing from the other direction. A slower cause is interest: debt on Aave accrues continuously, so a position nobody touches for months quietly slides downward on its own. Occasionally Aave governance lowers an asset's liquidation threshold, and every position backed by that asset is reduced on the same day.

Does anything change on the way down?

Your borrowing power does. Below a certain point the app will not let you take out more, and it will not let you withdraw collateral either, because either action would push you past the line. Interest rates can also climb if the pool is heavily used, which speeds up the drift. Think of a fuel gauge dropping towards empty: the car drives the same until the moment it does not.

What if it reaches 1?

At 1 the position becomes fair game. Liquidation bots compete to repay part of your debt and claim the matching collateral plus a bonus of around 5% on assets such as ETH or USDC. Up to half the debt usually goes in one step, and the whole of it if the number has fallen to 0.95 or below. The loan is settled either way, you keep the remainder, and you owe nothing extra.

Set a price alert now rather than refreshing the app. Pick the level that would drag you to about 1.3 and have your phone tell you, so you can repay or top up while you still have a choice. How the health factor is calculated shows where that level comes from, and how to avoid getting liquidated covers what to do with the warning.