With the growth of cryptocurrency startups, it was only a matter of time before crypto loans became a thing. We’re going to give a brief insight into what a crypto loan is, how it works, and why you should get one. Covering undiscussed topics such as crypto loan interest, Bitcoin tax and using your crypto as collateral to secure you loan.
What is a crypto loan?
A crypto loan is essentially the same thing as a regular loan - you borrow money, and then pay it back. However, something like a Bitcoin Loan allows you to use your digital assets as collateral in order to secure your loan, in exchange for liquidity from a reliable lender, providing a wider range of benefits towards the borrower, that wouldn’t be offered by regular loan companies.
Virtual currency loans are known to be ideal for those who have digital assets, and need quick cash, but want to avoid selling their hard earned crypto. With the crypto market being so unpredictable - it’s no wonder they want to keep their assets whilst waiting for a bullish market to return. Lenders will hold your assets in a secure place, such as an accredited 3rd party, until you have the money to repay them for what you have borrowed.
Benefits for borrowers:
- Don’t have to sell your crypto
- Instant loan
- No credit check
Crypto Loan Interest
A huge concern for most when it comes to traditional loans is the precipitous interest you must pay back, due to low credit scores, loan duration and loan amount. Crypto loans are perfect for those looking for low interest rates as the amount of collateral often determines your interest.
The best thing about using crypto as collateral to borrow liquidity, as opposed to selling your crypto for cash, is that borrowing does not count as a taxable event, whereas selling does. So, if you’re looking to sell your crypto in exchange for some quick cash, you may want to consider getting and bitcoin or ETH loan instead to save some big bucks on tax. We suggest speaking with a crypto tax advisor before making any major financial decisions.
How a crypto loan works:
- You’ll transfer your digital assets in exchange for liquidity.
- Once you have fully paid back your loan, you’ll receive your digital assets back.
- You receive the full balance back, even if the market has significantly increased its value.
Don’t sell your crypto
With the potential of the crypto market, the last thing you want to do is sell your digital assets. Virtual currency loans allow you to keep your cryptocurrency, and still get the money you need.
A big concern for us crypto lovers, is that if we sold our crypto to buy that new car we wanted - we may never be able to get crypto back into our hands for the same price we purchased it for or may have sold it too early and missed a huge increase of coin valuation.
Bitcoin Loan Collateral
With traditional loans, allowing borrowers to use an asset such as property, vehicles or jewelry to secure a loan has always been a pretty popular and successful method used amongst lenders to lower interest rates for the borrower and to ensure that they will in fact return their borrowed liquidity. Bitcoin loans utilize similar principles - a loans allow you to use your cryptocurrency assets as collateral, to secure your loan and reduce interest rates.
High Lending Approval Rates
With some loan companies, there is not much leniency surrounding approval depending on your credit score - it’s not always possible to get a loan when you need it, especially when you’re not holding anything against your loan. The great thing about a bitcoin loan is that there is no credit check involved, which could normally determine the outcome of your loan application. Crypto loan companies know that temporarily giving up your crypto is enough to show that you’ll pay your loan back.
Am I eligible for a crypto loan?
Loans are often there for large purchases, emergency purchases or refinancing debt. If you see a huge investment opportunity but haven’t got the funds at the time - crypto loans are also ideal for those but with huge risk that can result in a margin call – a request to increase your collateral.
Examples of why you may need a crypto loan:
- Emergency purposes (leaky roof)
- Refinancing debt
- Business Startups
Many loans take at least a few days to be transferred to your account. Crypto loans are transferred almost instantly - they will take a few minutes at most to be transferred into your bank account. Making it one of the best types of loans for receiving money exactly when you need it most.
Where are my digital assets kept?
Crypto lenders hold your assets in multiple 3rd party cold storage wallets to ensure safety of your crypto during your loan period.