How do crypto backed loans work?
Crypto-backed loans are a new way to get money, and they work like this. You take out a loan with the idea that you’ll pay back the money with interest later. The interest is paid in cryptocurrency. You deposit your crypto into the platform and give them access to your funds, which you can use to pay off your loan.
The platform uses the market value of the token to determine how much you owe and then changes the token’s value so that it equals the value of its debt. You pay back your debt in full, plus interest charges on top of that. The lower your cryptocurrency’s market value, the higher interest you will have to pay.
The beauty of using crypto-backed loans is that they are available to anyone with a crypto wallet. You use your crypto as collateral and get a loan with the money you need to pay off your bills or invest in your business.
You don’t have to worry about being able to pay back the money you owe because it will be paid back automatically by using your own cryptocurrency instead. It is also fast and easy to get a loan – You don’t need to be an accredited investor or have any special qualifications to get one.
How are crypto loans paid back?
So, you’ve decided to take out a crypto loan. It’s a great option for those of you who are interested in investing in cryptocurrency but don’t have the capital to get started.
How to pay back your crypto loan
When you take out a crypto loan, you’re borrowing money from a cryptocurrency exchange. The exchange will then transfer the cryptocurrency equivalent of your loan to your wallet. You can then use that money to pay off the original loan amount or pay off any other debts you may have at the same time.
When you take out a crypto loan, your payment goes directly to the lender. The lender then makes the payment to you. You can choose to pay back the loan in two ways:
Payback via cryptocurrency (i.e., Bitcoin or Ethereum)
If you decide to repay your loan using cryptocurrency, the exchange rate between crypto and fiat will determine how much money you’ll receive back in return for your crypto investments.
Payback via traditional money
Suppose you decide to repay your loan with traditional money (i.e., dollars). In that case, that amount will be converted into whichever currency is most convenient for both parties involved—and if both parties agree on it being converted into USD or another currency at the market value at that time.
Can I get a crypto loan without collateral?
Yes, you can get a crypto loan without collateral. Lenders will be willing to give crypto loans without collateral if you have a high credit score and the lender has a high credit score. In addition, you will be able to obtain a crypto loan without collateral if you can prove that you can pay back the money in full, plus interest. You may also be able to get a crypto loan without collateral if your income is stable and predictable, and it’s not likely that you’ll lose your job.
However, it’s a good idea to have some kind of collateral in case you need it later. That way, you’ll be able to get back into the crypto market without losing all your money.
If you don’t have any collateral, it is better to use a trusted crypto exchange like Binance that allows margin trading and lending. You can use those services to borrow money from other users until you start making money (and then pay them back).
Another option is to borrow from friends and family members who trust your financial savvy. If they know that you’re trustworthy, they might be willing to lend you money for a small percentage of interest.
Where can I get a loan for my crypto?
As a result of the many opportunities that crypto loans present us, we have compiled 5 top crypto loan providers as of 2022 in this section to help you look at the best crypto loan offers and choose from them.
Nexo is another Defi crypto loan platform. It is a multi-function lending platform founded in 2017 by Michael Arrington. In addition to cryptocurrency loans, it also combines LTV and collateralized loans. Nexo has a large customer base of over 2 million crypto investors and offers credit in about 45 fiat currencies.
The provider lends a range of $50 to $2 million and offers an LTV ratio that ranges from20% to 50% of the collateral. Nexo provides a flexible borrowing and repayment system that doesn’t require users to repay the loan in installments or monthly payments. It allows you to pay fully or partially at your own pace.
It also offers lower interest rates compared to other crypto loan platforms. Interest rates vary according to your loyalty tier and LTV ratio. The value of your NEXO determines your loyalty tier. Therefore rate is determined by the ratio between your NEXO’s value and your portfolio’s total value. Users are divided into four different tiers, which are: base, silver, gold, and platinum tiers. Interest rates for lower ranking users and loans with high LTV start at 6.9%, while interest rates for high ranking loyal users and loans with low LTV/ Gold or platinum users range from 0% to 1.9%.
Nexo is highly known for its high level of professionalism. Many users consider it the safest loan service due to its military-grade cyber (256-bit encryption, bank-grade cold storage, and a $375 million insurance policy that makes it highly secure. Their security infrastructure earned the ISO/IEC 27001:2013 certificate.
The loan process and requirements with NEXO are pretty simple and low.
Binance is the leading CeFi crypto exchange platform. It has millions of traders and investors generating and exchanging large volumes of digital assets. Binance services go beyond helping traders exchange digital assets in seconds. It also provides crypto loan services for millions of crypto investors worldwide. Crypto holders in the platform can borrow and take loans in the form of stablecoins and crypto assets. Users can borrow from five major loan terms, which include 7, 14, 30, 90, and 180 days.
Getting a crypto loan in Binance doesn’t take a lot of process. All you have to do is deposit collateral from your spot wallet, and you will receive the loan in USDT or BUSD (BUSD is Binance’s own stablecoin). The great thing is that you don’t only have to receive your Crypto through only BUSD or USDT; there are a lot of other currencies you can borrow. There is, however, a clause you must have in mind when you want to take a crypto loan from Binance (as with other crypto platforms, you will need to have some funds in your wallet to be used as collateral). Like in other platforms, everyone is not allowed to borrow the same amount or value from Binance. The amount of assets a user is qualified to borrow depends on his LTV ratio. In calculating the number of assets you can borrow from Binance, you should remember that the minimum and fixed LTV for using bitcoin as collateral is 65%. For instance, if you have 1 Bitcoin to use as collateral when the bitcoin price is $30000, you will be able to borrow 19500 USDT (50000*65%).
Crypto.com is another crypto loan site people go to borrow funds. This platform gives out loans without credit checks; all you need to do is to deposit your collateral. The loan and repayment process of crypto.com is also easy. The provider offers its users an LTV of up to 50%. This implies that you have to have a minimum of %500 to be able to borrow $10000.
The interest rate of Crypto.com is a bit different from the ones we have seen, and the interest rate is not dependent on LTV. It is determined by how much you stake the platform’s native digital currency. For example, the average interest rate of stablecoins without staking Crypto is 12%. You can reduce this interest rate by staking $40,000 worth of CRO tokens. Crypto.com has multiple markets and cryptocurrencies backing it up.
BlockFi is a crypto ecosystem founded in 2017 and designed for advanced traders. It is focused on extending traditional financial services into the crypto world. Beyond its crypto exchange services, BlockFi allows people to access some of their capital without closing their positions or selling their Crypto. It provides interest rates as low as 4.5% to 9.75%.
With BlockFi, you can get a loan of up to half of your crypto holding in BTC, ETH, or LTC.
The payment process and requirements here are simple; there are no prepayment penalties. Blockfi lends on a 12-month term, but you can also go for a shorter loan referred to as a bridge loan. They stop calculating your loan’s interest rate once you repay it. If you repay before the 12 months term, you won’t have to pay the rest of the interest you should have paid within 12 months.
Blockfi has a loan structure that gives you the options to prepay if your needs require a shorter time frame or to refinance at the end of the 12 months term if you require a longer time for your financing. Everything comes down to what you intend to accomplish with the loan.
However, there are some risks involved. Crypto assets are highly volatile. So it has the tendency to drop down too far or lose its value. In this situation, you must add to your deposited collateral as soon as possible.
YouHodler is a Swiss company founded in 2000. It is also an official Blockchain Association member. It was built to help crypto investors manage their digital assets. Amongst a wide range of services, it offers customers the option of taking crypto loans.
YouHodler has dominated crypto loan services over the years, and this is because of some attractive features and provisions in its loan services. It allows customers to borrow on a range of 20 different crypto coins and offers them a loan-to-value ratio of up to 90%.YouHolder doesn’t just offer loans in cash; users can also borrow cryptocurrencies with a minimum amount of $100 or the equivalent in digital assets.
The provider offers users multiple exit options asides from repaying the loan. With YouHodler, you have extra options of closing without repaying, managing loan duration or walking away with 85% of your asset value on 90% LTV loans.
LTV stands for loan-to-value ratio. A loan’s LTV determines the amount of crypto collateral you need to deposit while applying for a loan. The formula for LTV is LTV (%) = Loan Amount ÷ Value of Collateral.
The interest rates in YouHodler differ in a range of 35 to 5% based on the type of loan package. It provides three crypto loan packages with different terms and loan-to-value ratios. A 30-day term and 90% LTV ratio will attract a 3% interest rate, and a 60-day loan term and a 70% LTV ratio will attract a 5% interest rate. The third package’s 180-day term and 50% LTV ratio attract a 9 % interest fee.
YouHolder also has an easy application process. It is widely known for its speed in processing loans. It is also important to note that YouHolder’s services are unavailable to customers in the United States.
With what you have learned about crypto loans, the top crypto loan providers in 2022, and their offers, you can make a good choice to get a loan from any of them. A crypto loan can help you protect your portfolio and make more profits instead of selling it all off for anything.