Loans have changed. Sure, your bank still offers loans, but there is a new way to get a loan: crypto lending. What is a crypto loan? Let’s find out.
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What Is a Crypto Loan and How Does It Work?
Crypto backed loans concept is pretty straightforward – customers are able to use their cryptocurrency as collateral to obtain fiat loans. The service has become very popular in the past few years as crypto holders tend to see their digital assets as the long-term investment rather than the immediate spending capital looking for ways to increase the productivity of their digital assets. Before crypto holders options were limited to either hold or trade. Crypto backed loans allow consumers to gain access to fiat liquidity while still keeping their digital currency.
When looking for the best loan terms keep in mind that the loan interest rate will depend on the LTV (loan to value which indicates how much cash you will get against your crypto pledge) ratio of the loan. Higher LTV would generally command higher interest rate but would provide more cash available. For example, with a 60% LTV a customer might see interest rates between 6% and 8%, but would only get 60% value of the pledged collateral given as cash, while with an 80% LTV the interest rates would be higher (up to 14%) but a customer would secure much more cash against the provided crypto pledge. With the average term of 12 months the higher LTV loans are usually more popular but a bit more difficult to find due to higher risk factors to lenders providing such loans.
If you pay off your loan in its entirety, you’ll receive your crypto back in return.
Reasons to Get a Crypto Loan
If you’re wondering how do Bitcoin loans and why you should get a crypto loan, there are a lot of reasons. The main reasons that people get crypto loans are:
- No credit check. You don’t have to deal with a tedious credit check that punishes you for the past decisions you’ve made.
- Need money to trade. Investors need to make fast, decisive moves when making a trade. You can get a crypto loan to reinvest money back into your trading and make more money in the long-term.
- You need fiat. While crypto is a great investment, the world’s banking system relies on fiat currency. You won’t be able to make most of your purchases in crypto, so a loan is a good way to turn your crypto into cash that you can use to pay your bills.
- Emergencies. Many investments are great and can be turned into cash, but your investments will take time to be liquidated. When you have crypto as part of your investment portfolio, loans allow for immediate liquidation so that you can have fiat currency to pay emergency bills.
When you need funds fast, you might not have to time to wait for a traditional lender. Crypto lending allows for rapid funds to hit your bank account so that you can use your money immediately – no tedious approval processes required.
Bitcoin Loans vs Regular Loans
What is Bitcoin lending and how do these loans compete against traditional loans? Regular loans (you know, the standard loans with the rigorous approval process) are from traditional banks and take a while to be approved.
Your credit will be checked, and you’ll likely be asked to put up some form of collateral. Most individuals will have to put their homes or car titles up as collateral.
If you can’t pay your loan, you risk losing your collateral.
Bitcoin loans are different because you’ll be able to:
- Avoid sky-high APR rates linked to your credit history
How to Borrow Bitcoin or Ethereum in 5 Simple Steps
Nebeus Loans makes it simple and easy to borrow Bitcoin or Ethereum. You can use a simple five step process to get started:
1. Open an account with Nebeus – it’s fast, simple and takes just 2 minutes.
2. Choose the product you want to use. In this case, crypto-backed loans.
3. Choose between a Bitcoin or Ethereum loan, paying attention to the loan-to-value.
4. Receive an instant loan approval.
5. Transfer money to a credit or debit card.