Throughout the ages, loans have taken on many different forms, but the concept has remained the same. Dating as far back as classical Greece, the practice of lending has deep roots.
Today, however, we are a long way from the era of Zeus and Athena, and our oracles no longer hail from the Temple of Apollo, but from the codebase of Chainlink. As such, the way we loan money has changed significantly, too. Whereas people used to measure loans in silver talents, we are beginning to collateralize them with digital assets like Bitcoin, Ethereum, and Litecoin.
The term loan tends to put people off because there are too many connotations associated with it. At its most basic, a loan is nothing more than one entity lending money (or other valuable assets) to another.
In recent history, loans have become a popular way to receive an advance of government-backed fiat currencies like USD, GBP, EUR, and JPY. With the advent of Bitcoin and blockchain technology, the nature of loans is changing—and fast.
Cryptocurrency loans are becoming increasingly common as the number of people investing in them also rises. To take advantage of this trend, you’ll need to get up to speed on what a cryptocurrency loan (sometimes called a Bitcoin loan) is, as well as how they work.
A Crypto Loan is a Secured Loan Backed by Your Digital Assets
Standard cash loans can seem daunting at times, so it’s understandable to feel the crypto version will be way over your head. Worry not—in reality, they’re easy, accessible, and backed by leading financial institutions.
The way a cryptocurrency loan works is simple. In effect, you are doing nothing more than leveraging your cryptocurrency investments to borrow a desired amount of cash.
Traditional collateral loans work by having the borrower put up an asset, such as real estate, to secure funding from a bank or other lending institution. A cryptocurrency loan, in contrast, doesn’t require you to stake your real estate or other personal assets.
Instead, you collateralize your cryptocurrency holdings and receive a fiat (or digital) currency loan based on the type and value of your assets. Crypto loans have several advantages over traditional loans, the most notable being:
Crypto loans keep working for you. You require a cash infusion and consider selling your crypto assets. However, you choose to take out a loan against them, which is greatly to your benefit. The reason is that if you sell your crypto assets, you’ll miss out on potential future gains when they increase in value. By getting a loan against them instead, you don’t have to sell your crypto, meaning you stay in the game for potential gains and get the loan you want.
Blockchain-based loans are fast and secure. Blockchains are immutable ledgers that are trustworthy and fraud-proof. Importantly, that doesn’t mean your personal details are recorded on them since they are pseudonymous as well.
With these qualities, applying for a crypto loan is faster than applying for a traditional loan, and is far more transparent to boot.
A typical flow for securing a crypto-backed loan goes like this:
- Send crypto to the loan institution’s wallet
- Receive a line of credit without going through a hard credit check
- Withdraw cash or spend using an associated credit card
- Pay back the loan within established terms
- Get your cryptocurrency back
It’s a simple and straightforward process that can be a viable loan option for anyone with crypto assets they don’t want to sell and can use to secure funding.
Qualifying for a Cryptocurrency Loan
Among major crypto lending platforms, qualifying for a loan is a straightforward process that carries very few of the hassles associated with traditional loans. This, in effect, widens the number of potential applicants who can successfully apply for and receive a crypto loan.
To have your application for a loan approved as quickly as the same day, you’ll need a few key items. Make sure you have:
- a form of ID (passport, driver’s license, state-issued ID, etc.)
- valid phone number and mailing address
- a cryptocurrency balance that is sufficient for the loan amount
- and in some instances, a bank account to deposit your loan
Unlike traditional bank loans, you won’t have to undergo a credit check for approval. This is one of the main benefits of crypto loans for many consumers, especially those with less-than-perfect credit.
Crypto Loan Limits and Rates
Cryptocurrency loans are operating on the cutting edge of decentralized finance. Owing to this, there are a wide variety of loan limits, rates, and terms that depend on the company you work with.
Though the companies and platforms vary greatly in terms of user-friendliness, assets accepted, and loan terms offered, a few characteristics are pretty standard across the emerging industry.
For instance, interest rates generally start at 8% and aren’t dictated by your credit score. Because you’re collateralizing crypto assets to qualify for the loan, your credit score doesn’t factor in—which is excellent news for many would-be borrowers.
Generally speaking, you’ll get the best interest rate the shorter your loan term is. Choosing a short-term loan can net you an interest rate as low as 3% whereas longer-term loans will charge higher interest rates.
Minimum loan amounts range from $50 to $1,000 or so and max out anywhere between $1 million and $25 million, depending on the lender.
Where to Get a Crypto Loan
The crypto lending industry has been heating up over the last couple of years with several players entering the field. As always, however, the cream of the crop rises to the top.
BlockFi, Salt Lending, Celsius Network, and are some of the best-known and most widely used lending platforms in the space.
[lender-shortcode lender=”BlockFi”]
[lender-shortcode lender=”Salt Lending”]
[lender-shortcode lender=”Celsius Network”]
You can find out more about each of these lending platforms in our reviews.
Assets that Can Be Used as Collateral for a Crypto Loan
As a rule, you can count on being able to use Bitcoin, Ethereum, and Litecoin as crypto collateral for a loan. With the industry rapidly evolving, however, more digital assets are being accepted.
Loans backed by Ripple, Bitcoin Cash, OmiseGo, Dash, Dogecoin, and Tron are not altogether uncommon. Having said that, only Nexo, Celsius Network, and Salt Lending offer such a wide variety of currencies. When in doubt, your best bet is to convert your more obscure altcoin holdings into one of the big three (BTC, ETH, LTC) before applying for a loan.
