Crypto Loans: Everything you Need to Know About Lending
By Space Coast Daily // July 27, 2022
In the United States and other countries, crypto has experienced increasing mainstream acceptance and popularity. Lending using crypto has the potential to replace traditional loans as we know them. It simplifies the loan application procedure and has fewer requirements than conventional lending techniques.
However, many people still find the concept of crypto loans to be hazardous and, in some respects, too good to be true. Crypto could be viewed as a separate asset class. Like traditional assets like stocks, homes, or vehicles, your Bitcoin can also be used as collateral for loans. These loans have the benefits of no credit checks, same-day funding, low-interest rates, and cash availability.
What are crypto Loans?
A crypto loan is a secured loan in which you use your cryptocurrency holdings, such as Bitcoin and Ethereum, as collateral to obtain funding from a lender that you will repay in installments. You receive your cryptocurrency back after the loan if you complete your payments on time and repay the loan in full.
Following receipt of the collateral, the lending platform issues the loan, often issued as a stablecoin. The collateral cryptocurrency is then held until the complete loan repayment is made.
The loan amount for a cryptocurrency is typically expressed as a loan-to-value (LTV) ratio of the cryptocurrency you use as collateral. With a lender like Binance, you may borrow up to 50% of the value of your cryptocurrency, and with a lender like Vexel, you can borrow up to 90%.
2 Types of crypto loans
The two types of crypto loans are CeFi and DeFi:
In centralized crypto loans, the corporation or authority handles user onboarding. To secure the assets, the authority trades fiat money and cryptocurrencies with the custodian throughout this onboarding process. The centralized loan is adaptable when forming alliances with other enterprises and settling on specific loan agreements.
A margin is a tool centralized crypto loan platforms use to attract members. Additionally, they have deals with cryptocurrency lenders and offer enticing interest rates.
Decentralized crypto-loans operate as peer-to-peer loans in which a blockchain-powered Defi crypto lending platform links the lenders and borrowers. Smart contracts govern these loan types, independent of any centralized authority.
To obtain cash loans, individual borrowers use their digital or cryptocurrency assets. The operating capital obtained from these financial advances is then used.
DeFi platforms frequently do not require KYC, are non-custodial, and only accept cryptocurrencies. The interest rates fluctuate according to market supply and demand, although they are frequently cheaper than those offered by centralized lending institutions.
Since the protocols are open to anyone and the transactions are kept on public blockchains, DeFi is more transparent than centralized systems. The interest rates for DeFi crypto loans may be greater than those on CeFi.
Reasons to apply for a crypto loan
Although getting a loan from a bank or another lending organization is the more prevalent choice, more and more people are considering cryptocurrency loans as a substitute. Platforms for crypto financing offer the following advantages:
No waiting for approvals
While traditional banks may require 45 to 60 days for some loan kinds, the full approval procedure takes no more than 48 hours (i.e., mortgages).
Crypto lending is faster
The time it takes for your loan to get authorized when you borrow money from a bank might range from a few days to a few weeks. The majority of platforms for cryptocurrency lending will authorize your loan in less than 24 hours.
While verifying your identity is typically necessary, crypto loan platforms don’t go through a mountain of paperwork to see if you qualify or not.
The application process is substantially quicker because you can get a loan as soon as you have any cryptocurrency (or, in some situations, fiat money) that you can use as collateral and a piece of government-issued identification.
Crypto lending is more accessible
If you’ve ever asked for a loan at a conventional bank, you know how drawn-out the procedure is. Your credit score is important in traditional lending since it affects how much you may borrow. You might not be able to obtain the necessary finances if your credit score is low.
If you are unemployed, getting a loan through a traditional bank can be a time-consuming process that is almost impossible. Both of these problems are resolved by cryptocurrency loans. You don’t need a bank account, and most crypto lending sites don’t consider your credit score.
When traditional banks don’t even consider providing a loan, cryptocurrency loans can assist people in acquiring the money they need.
No credit checks
When offering loans, crypto loan platforms are not required to investigate your credit history. The only proof that the applicant has enough collateral is needed for approval.
Flexible loan terms
There are no obligatory principal payments for the duration of the loan; instead, borrowers determine the repayment terms. Borrowers may pay only interest or the due amount without additional fees or penalties.
APR is as low as 0%
While banks might give auto loans with 0% APR, cryptocurrency platforms offer a significant edge. Your collateral may increase in value over time if you apply for a loan using a store-of-value cryptocurrency you already possess, like Bitcoin or Ethereum. After the loan period, the collateral is given back.
High borrow limits
The borrowing limitations on many crypto lending platforms are relatively large (the exact amount varies depending on location).
Maintain your portfolio
Lastly, crypto loans are a practical way to access more money without selling your current assets. Borrowers can use their portfolios to produce cash flow without being concerned about the tax ramifications of crypto because taking out crypto loans doesn’t include capital gains.
How do you get a crypto loan?
■ You must possess one of the accepted cryptocurrencies to apply for a crypto loan. Find out which coins are accepted by your lender.
■ Find the most suitable lender for you by doing more research on reliable lenders. Carefully review the qualifying requirements and terms & conditions since each lender has a unique application process. For crypto loans, a platform like Vexel may be the ideal option. Vexel is a user-friendly and straightforward platform for trading cryptocurrency. A digital wallet called Vexel is used to store and exchange fiat money and cryptocurrency. You can use it to purchase, sell, transfer, deposit, withdraw, and even take out cryptocurrency loans.
■ Open an account with the lender to start the application process.
■ Complete the account opening process, including confirming your identification and cryptocurrency holdings.
■ You can choose the loan type based on the LTV, loan amount, and the repayment period you are comfortable with. Most lenders, including Vexel, offer calculators to help determine how much you can borrow and how much collateral is needed to secure your loan.
■ Give details about the currency and loan amount you want to receive. Review the required amount and the currency to be used as collateral.
■ The loan amounts will be quickly deposited into the account after you confirm without paperwork or time-consuming approvals.
Cryptocurrency loans have the potential to transform the credit market completely. Despite being a relatively new credit product, cryptocurrency loans are causing a stir and growing popularity. Many people now have access to financial freedom because of crypto financing, which has the potential to transform the financial sector as we know it completely.