Getting a Crypto Loan in Bitcoin, Ethereum, and More

A crypto loan is a type of loan where borrowers use cryptocurrency assets as collateral. Collateral is any asset that borrowers pledge for their chosen lender to approve the loan. 

Collateral is a vital part of the loan process as it reduces the level of risk borne by lenders. For instance, if a borrower fails to repay their loan, then lenders can offset these losses by seizing the borrower’s collateral. Collateral assets traditionally include stocks, fiat money, vehicles, real estate, equipment, and business inventory. 

With crypto loans, lenders accept crypto collateral. This has only recently become an option for investors. However, as the cryptocurrency industry expands, crypto is rising in value and has become a suitable form of collateral for lenders. Crypto collateral can include any type of cryptocurrency. But, many established lenders choose only to accept well-known and stable crypto coins such as Bitcoin and Ethereum. 

This article will show you how to get a crypto loan using crypto coins like BTC and ETH. Simply follow our beginner-friendly guide, and soon enough, you’ll have successfully applied for a crypto loan. Let’s get started! 

 

Source: Pexels

Who Are Crypto Loans Suitable For?

Crypto loans can be a suitable option for you, regardless of if you’re a crypto trader or not! Although cryptocurrency is volatile and high-risk, using this asset as collateral has a few key advantages over a traditional loan. So, crypto loans will be suitable for you if:

• You want to remain private when getting a loan

For a start, crypto loans generally provide borrowers with much more privacy compared to other options. Often, when you apply for a loan from a bank, the bank will thoroughly investigate your background, including your credit history, through standards such as KYC (Know Your Customer). However, most crypto lenders will not complete these checks, allowing borrowers to maintain greater privacy and even anonymity. 

• You want a loan with reduced interest rates 

With crypto loans, you’ll likely pay a lower interest rate compared to a standard bank loan. So, if your main goal is saving money, you should definitely consider getting a crypto loan. Just be sure to check the interest rates of any lenders you’re interested in using. Also, to get a general idea of how much interest you’ll pay, we suggest calculating your Loan To Value (LTV). We’ll show you how to do this in one of the following sections! 

• You want to refrain from selling your crypto holdings 

If you’re a trader with crypto assets in your portfolio, you may benefit from getting a crypto loan. Crypto loans allow traders to access the value of their assets without actually selling them. This can be highly beneficial since selling crypto means that you have to pay capital gains tax. If, instead, you decide to use your crypto as collateral, then you’ll still have access to your money without actually selling it. 

The Pros and Cons of Crypto Loans 

Are you still wondering whether or not it’s worth getting a cryptocurrency loan? Check out our summary of the main pros and cons of crypto loans in 2023!

Pros

• Lower Interest Rates – Want to save some extra money when getting a loan? Crypto loans are likely your best bet! Crypto lenders usually offer much lower interest rates compared to traditional lenders. This makes crypto loans a highly affordable option for borrowers!
• Additional Privacy – If you want to avoid customer identification checks when getting a loan, you’re better off using a crypto lender. This will provide you with a greater degree of privacy compared to traditional loans. 

• Faster Processing Speeds – Typically, crypto loans are processed much faster than standard loans. Whilst bank loans can take up to a few days to be processed, often, crypto loans will only take a couple of minutes or hours. 

Cons 

• Higher Level of Risk – Much of the crypto industry is unregulated. Although this is one of the most appealing parts of the crypto world, it can result in more risk. As crypto lenders are not as regulated as bank lenders, users do not have the same level of protection as they would with a traditional loan. 
• Limited Access to Crypto – Crypto loans are a great option for accessing the value of your crypto assets without selling them. However, by doing this, you’ll have limited access to your holdings. This means you cannot quickly adjust your portfolio by selling your crypto during price hikes or bull runs. 

Source: Unsplash

How To Get a Crypto Loan [Step-by-Step Guide] 

Decided that you want to get a crypto loan? Not sure where to start? The process might seem daunting, but is actually more straightforward than you think. Follow our step-by-step guide to learn how to safely get a crypto loan today:

1. Have Crypto Assets Available to Loan 

Firstly, you must have cryptocurrency assets ready to use as collateral. Although it varies between crypto loan providers, many only accept established and less volatile crypto coins such as Bitcoin (BTC) and Ethereum (ETH). However, in some cases, lesser-known cryptocurrencies are also accepted as collateral. 

If you already have a trading portfolio with crypto assets, you can jump to the next step. If not, then don’t worry! Even if you don’t have any previous trading experience, it’s easier than ever to get started and buy your first crypto coins. 

The best way to purchase cryptocurrency as a beginner is through the help of a professional broker. Brokers are firms or individuals that assist traders of all experience levels through various tools. These tools can help you to build confidence and practise your trading skills with reduced risk. There are also plenty of resources available that will walk you through the process of choosing and buying various coins.

The hardest part of using a broker is picking a suitable one for your needs. That’s why we recommend signing up for a crypto platform first. Crypto platforms such as https://biticodes-app.com use your individual preferences and trading goals to match you with the most compatible broker based on factors such as your experience level and location. This will save you time, so you can quickly set up a trading portfolio and buy coins to use for your crypto loans.  

1. Pick a Crypto Lender

The next step is to choose a crypto lender that you’ll use to get your loan. You must be cautious when choosing a lender, as there are tons of scams around. Not only this, there have been instances where lenders have become insolvent, resulting in their clients losing their crypto assets. That’s why it’s crucial to do plenty of research and make sure you use an established lender! 

When deciding which crypto lender to use, here are a few key questions you should know the answers to:

• Which cryptocurrencies are supported?
• What types of loans are available?  
• What is the loan interest rate?
• Is the platform decentralised or centralised? 
• What is the Loan To Value (LTV) range?
• When do I make loan interest payments? 
• What are the maximum and minimum loan sizes?
• Are there any background checks, such as KYC?
• What additional features are available?  

If you’re having trouble finding a suitable crypto lender, then you can opt to use a crypto lending platform such as CoinLoan. A crypto lending platform serves as an intermediary (or middleman) between lenders and borrowers. Lending platforms are great for simplifying the loaning process, making them the best option for beginners. 

1. Choose a Type of Loan 

After you’ve chosen a crypto lender, you need to decide which type of loan to apply for. With crypto loans, you have two opinions – custodial (CeFi) and non-custodial (DeFi) loans. It’s important to carefully consider which type of loan is most suitable for you before proceeding! 

CeFi Loans

With CeFi loans, your loan is processed and handled by a centralised exchange, similar to a traditional bank loan. These loans are the safer form of crypto loans as they are much more regulated. CeFi lenders also offer much more appealing interest rates, making them a cost-effective option for borrowers. 

However, as the exchange manages your loan, you won’t be able to access your collateralized assets. CeFi loans also usually complete KYC checks and require certain personal information from borrowers, such as their credit history. 

DeFi Loans

DeFi crypto loans are peer-to-peer (P2P) loans based on smart contracts. With these loans, borrowers add their crypto assets to a ‘lending pool’ through decentralised applications (dApps). As a result, there is no need for an intermediary or centralised entity.

DeFi loans are the most private and transparent option since there is no need for KYC checks or other identification processes. Additionally, borrowers have a higher level of anonymity, and loans are typically more likely to be approved. But, since DeFi loans are highly unregulated, they are less safe than CeFi loans and can be considered too high-risk for some. 

1. Decide on Your Loan Amount

When you know which type of loan you want to get, it’s time to figure out how much you want to borrow. Firstly, you should check your chosen lender’s minimum and maximum loan amounts. Next, you can begin calculating your Loan to Value to decide how much you can borrow whilst still getting approved by your lender. 

The Loan to Value (LTV) is a formula used by lenders to determine the lending risk of a loan. This helps the lenders to decide if a loan amount is eligible to be approved and what the appropriate loan interest rate should be. The LTV can be calculated by comparing the value of the collateralized assets with the amount being borrowed. You can see the LTV formula below: 

(Loan amount/value of assets)* 100 = LTV %

For example, if your collateralised crypto is worth €10,000 and you want to borrow €5,000, your LTV will be 50%. This is because (5,000/10,000)* 100 = 50. 

The lower your Loan to Value is, the more likely your loan is to be approved. Lenders will have varying LTV ranges, but most will not approve loans with an LTV higher than 80%. Even if your lender approves your loan, a high Loan to Value will result in a higher interest rate. On the other hand, loans with low LTV will likely result in reduced interest rates. That’s why you should take your time calculating your LTV before decking how much you want to borrow. 

1. Transfer Over Your Crypto Assets

Once you’ve completed the previous steps, you just need to apply for your loan and wait for its approval. After this, all that’s left to do is transfer over your crypto assets! You can do this by depositing your crypto asset into a lending platform or exchange. Alternatively, you can set up a private wallet key with your lender. 

Now, you can wait for your loan to become available. Again, this varies between lenders but usually takes anywhere between a few minutes and several days. Done! 

Summary

There you have it! That’s how to get a cryptocurrency loan with any cryptocurrency assets! As you can see, this process is fairly simple, and you’ll have no trouble completing it! You don’t even need any prior experience with loans or trading to safely get a loan using crypto. 

To recap, here are some things to keep in mind when getting a crypto loan:

• Consider why you want to get a crypto loan. 
• Understand the risks associated with crypto loans.
• Do plenty of research on various lenders before choosing one.
• Learn the difference between DeFi and CeFi loans.
• Make sure to calculate your LTV before applying.

If you consider these points and follow our guide, you’re all set to apply for a crypto loan using Bitcoin, Ethereum, and other crypto coins! 

 

Follow us on social media

• 
• 
•