What Is a Crypto Loan?

What Is a Crypto Loan?

Jul 26, 2022

Crypto companies lend billions of dollars each year.

It’s a unique asset class. Yet, cryptocurrency is similar to other assets, like cars, houses, and stocks. As a result, your crypto can serve as collateral for a Bitcoin loan, enabling you to take out a crypto loan.

Keep reading to learn more about crypto loans.

What’s a Crypto Loan?

A Bitcoin loan is a secured loan. It involves using your digital assets as collateral in exchange for money.

You must pay the loan back in installments. The term of the loan lasts until you’ve repaid the lender in full. At that time, the lender will return your cryptocurrency.

You won’t receive an equal value loan for your crypto. Instead, you’ll receive a certain loan-to-value ratio (LTV). The lender bases the ratio on a percentage of your cryptocurrency.

Benefits of Crypto Loans

When it comes to crypto for beginners, crypto lending is an innovative vehicle. It enables you to access money quickly.

It also enables you to use your digital assets as a safety net. You can use it to access cash.

More importantly, you can access money without having to sell your crypto. Still, you can use the Bitcoin loan to achieve your goals.

You may also want to consider becoming a crypto lender if you’re interested in crypto investments. In this way, you’re investing in cryptocurrency by lending some or all the ownership of your crypto.

More on Crypto Loans

Exchanges like Binance might lend you up to 50% of your crypto LTV. Another service like YouHodler may lend you up to 90% of your LTV.

Some lenders accept as many as 40 different kinds of crypto for collateral. However, a Bitcoin loan is one of the most popular ones used for borrowing.

The terms of a crypto loan can last from seven days to a year or longer. Also, the interest rates for crypto loans are relatively low compared to traditional personal loans and credit cards.

For example, a crypto lender like Nexo may charge a rate anywhere from 0% to 13.9%. BlockFi offers loans with a rate as low as 4.5% APR. Meanwhile, OKX Loan may charge a rate between 1,5% and 5%.

Types of Cryptocurrency Loans

There are two kinds of crypto loans. These loans include CeFi and DeFi.

CeFi means decentralized finance. It’s a custodial crypto loan. In other words, the lender controls your crypto during the term of the loan, and most Bitcoin loans use this method.

Meanwhile, DeFi means decentralized finance. It works using smart contracts. The contracts ensure you comply with the loan terms.

You’ll keep control of your crypto. However, the lender will take automatic action against your account if you default on the loan or miss a payment. Also, a DeFi loan may have a higher interest rate compared to a CeFi loan.

What You Can Do With Crypto Loans

You can use your Bitcoin loan for anything you desire. In most instances, a lender doesn’t restrict how you can use the funds, like with a personal loan.

For instance, you can use the money for a down payment on a house or a car. Alternatively, you can use it for school tuition.

You can also use a crypto loan to refinance debt. You can even use it to launch a new business.

Applying for a Crypto Loan

You must own a form of cryptocurrency lenders accept to apply for a Bitcoin loan. You can check with a potential lender to find out what kind of crypto they accept.

It’s important to research potential lenders. You want to find one that works best to fill your needs. Also, every lender has a different application process.

As you evaluate lenders, make sure to review their eligibility requirements. You’ll also want to look over their terms and conditions carefully.

Choosing the Right Loan

Once you’ve chosen a lender, you can start to review their available Bitcoin loans. Look for an LTV, loan amount, and repayment term that makes you comfortable.

Many crypto lenders have crypto borrowing calculators that help you figure out how much money you can access. The calculator will also show you how much collateral you’ll need for a loan.

Now you can submit your information using the loan application. Some crypto lenders approve loans within seconds. Typically, they’ll fund your account 24 hours after approval.

Understanding the Risks of Crypto Loans

It’s important to understand that crypto lenders don’t have as much oversight as banks. As a result, you should weigh the risk of threats such as cybercrime, hacking, or even lender bankruptcy. If you lose your crypto in a security breach, there’s no guarantee that you can recover your funds.

Also, you must consider the price volatility of cryptocurrency. If the market fluctuates, the LTV might increase. As a result, you’ll need to provide additional collateral.

Remember that some lenders can liquidate your assets if you default on your Bitcoin loan or miss payments. They can do the same if you’re LTV increases but you can’t provide additional collateral.

Choosing the Right Lender

It’s essential to choose a crypto lender you can trust. You can check out reviews on sites like Trustpilot. Also, make sure to review a lender’s security protocols.

You should also make sure to include market changes in your budget. You don’t want to pay unwanted penalties because of market volatility.

Try Crypto Lending to Earn With Your Coins

Now you know more about crypto loans. Criffy is a great place to research crypto lenders.

We also offer detailed information on more than 200 crypto exchanges. In addition, we offer crypto cards so you can access and use your earnings easily.

Alternatively, you may want to try your hand at the crypto loan business. If so, you can start earning money now. Feel free to check out the latest crypto lending opportunities.

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