Are you in need of cash? Do you own any Bitcoin? Read below on why you should consider getting a Bitcoin loan
Below is a look at Bitcoin loans, their benefits and risks and some reputable crypto lenders. Discover the best Bitcoin loans. Additionally, get a list of the top Bitcoin lending platforms where you can apply for a Bitcoin loan with or without collateral.
- What is Bitcoin Loan?
- What is Decentralized Finance (DeFi) and what are its benefits?
- Why are people starting to get excited about the Bitcoin loans offers?
- How does a Bitcoin loan work?
- What are the advantages and disadvantages of a Bitcoin loan?
- What are the inherent risks involved with a Bitcoin loan?
- What happens if the value of my Bitcoin collateral goes up?
- What happens if the price of my Bitcoin collateral does down?
- What happens if you decide to repay your Bitcoin loan early?
- What are the legal assurances that protect the return my collateral?
- How is my Bitcoin collateal stored?
- Are Bitcoin loans a scam?
- What are the top Bitcoin Lending Platforms?
What is Bitcoin Loan?
A Bitcoin loan is a Fiat currency loan that is collaterized with Bitcoin.
- It does not require a hard credit check
- There are no strings attached to the funds
- The interest rates offered are uniform for everyone
Although there are no uniform regulations yet to underpin the Bitcoin lending industry, the industry is starting to grow. It is now easier to offer traditional financial products within a blockchain ecosystem with the increased Blockchain funding to crypto lending platforms.
Bitcoin loans have been made possible by the concept of Decentralized Finance (DeFi).
What is Decentralized Finance (DeFi) and what are its benefits?
Decentralized Finance (DeFi) refers to the inclusive open, global finance for everyone facilitated by the Blockchain technology
What are the inherent benefits of decentralized finance (DeFi)?
It is transparent:
Blockchain-based smart contracts delegate the same responsibilities to both parties in a financial arrangement.
It is relatively secure:
Transactions take place using highly-secure, human-free smart contracts.
It does not require a middleman:
Decentralized finance cuts out the third-party by organizing a direct, peer-to-peer arrangement between parties that is secured using blockchain-based smart contracts.
Why are people starting to get excited about the Bitcoin loans offers?
One word: Tax! Funding or closing a Bitcoin loan does not count as a taxable event, yet. That means that the borrower does not have any capital gains tax exposure.
Theoretically, the borrower can deduct the interest from the loan on your taxes.
How does a Bitcoin loan work?
The process of applying for a Bitcoin loan is very easy.
- The borrower signs up with the crypto lender
- The borrower then determines how much in USD (or any other fiat currency) the would like to borrow
- They then submit the Bitcoin loan application with the relevant the documentation needed for KYC/AML purposes (NOTE: It’s important to note that almost all crypto lenders will not carry out a credit check)
- The Bitcoin lender reviews the loan application
- Once the application is approved, the crypto lender provides the borrower with loan terms within hours
- Once the borrower accepts the loan terms, they then send the crypto collateral to the lender’s custodian
- Upon receipt of the crypto collateral, the crypto lender then wires the loan in USD or agreed upon fiat currency directly to the borrower’s bank account
What are the advantages and disadvantages of a Bitcoin loan?
|Bitcoin loans – Advantages||Bitcoin loans – Disadvantages|
|Bitcoin loans are approved very quickly – The loan approval speed is usually higher than in traditional loans. Although this may vary between lenders, it is mostly a faster alternative than going through a traditional lender.||The market is inherently volatile which ultimately leads to frequent margin calls – The Bitcoin market is extremely volatile which makes the Bitcoin loans adjustment and correction prone|
|The crypto lenders do no carry out any credit Checks – Crypto loans typically require digital collateral. This means that all manner of borrowers, even bad creditors who cannot access loans from financial institutions can be able to obtain loans. Bitcoin lenders assess your creditworthiness by looking into other factors other than your credit score.||The lack of regulation of the market increases the inherent borrowing risk – Bitcoin is not regulated in all jurisdictions. When dealing with borrowers or in countries where it is not regulated, it is difficult to receive any support in case things go wrong.|
|A bitcoin loan can essentially earn you money. Bitcoin hodlers can earn extra income by lending their crypto to borrowers as they wait for the markets to be favorable.||The industry is prone to a lot of scams – There have been many cases of scams in the past. Beware of too good to be true deals.|
|The lending rates offered for Bitcoin loans are very appealing – Borrowers can find favorable loan terms such as lower interest rates in comparison to traditional loans|
What are the inherent risks involved with a Bitcoin loan?
- The Bitcoin lending industry is not yet regulated of regulation. This means the debt. This can complicate debt collection when borrower defaults on loans.
- It’s impossible to determine the reputation of lendersthe creditworthiness of lenders. This means bad actors might infiltrate a platform leaving borrowers and lenders at risk for fraud
- Like all online bitcoin wallets, wallets operated by bitcoin loan platforms are constantly at risk of hacking attacks.
- Bitcoin price fluctuations means that the probability of margin calls cannot be eliminated
- Due to the lack of regulation there is an inherent risk of platform failure. If a platform were to fail, lenders may find it difficult or impossible to collect debts in the absence of the platform. Borrowers may find it difficult to repay their debt and or collect their collateral
What happens if the value of my Bitcoin collateral goes up?
In principle, any gains from the Bitcoin price appreciation are the client’s to keep “once the loan is paid off”.
Additionally, if any forks or airdrops were to occur during the loan term, crypto lenders will return any additional coins that occurred during the loan term AS LONG as their custodian supports that coin. Again, these coins will be returned once the loan is fully paid off.
What happens if the price of my Bitcoin collateral does down?
If the value of your Bitcoin collateral significantly decreases, a crypto margin call may occur.
What is a crypto margin call?
A Crypto margin call is a calculation based on the LTV (loan-to-value) rate outlined in your loan agreement and it happens when the value of your crypto collateral drops, increasing the LTV of your loan.
In the event of a margin call, you will have to add more Bitcoin collateral to your account to maintain a healthy LTV ratio.
The first margin call occurs at a 70% LTV. At this point, you have 72 hours to
- post additional Bitcoin collateral
- paying down the loan balance.
Most lenders will notify you if your LTV starts to near the 70% mark so you can take action preemptively.
If your LTV reaches the 80% mark, mot crypto lenders will automatically sell a portion of your crypto collateral to bring your LTV back to a 70% LTV.
What happens if you decide to repay your Bitcoin loan early?
Once your Bitcoin loan is paid off, all of your Bitcoin collateral is normally released to a Bitcoin, Ether, or Litecoin address of your choosing.
There are no penalties for early repayment. If you payoff early, the remaining interest is forgiven. This means that you won’t be charged for the interest you would have paid if the loan had been continued through the rest of the 12-month term.
What are the legal assurances that protect the return my collateral?
There are numerous protections set up for return of collateral:
- The first is the loan contract – it outlines our obligation to return collateral once the loan is paid off.
- Legitimate lenders operates under Article 9 of the Uniform Commercial Code, which governs secured lending and file a UCC-1 with the state you reside in.
- Legitimate Bitcoin lender work with 3rd party loan servicers that are set up to guarantee execution of loan contracts.
How is my Bitcoin collateal stored?
Legitimate Bitcoin lenders securely store client assets with reputable custodians at unique wallet addresses generated by the custodian.
- Reputable custodians are licensed by State Departments of Financial Services.
- Reputable custodians are also fiduciaries under state jurisdictions and therefore held to specific capital reserve requirements and banking compliance standards.
- Additionally, reputable custodians have some sort of digital asset insurance coverage and are SOC 2 Type 1 security compliant on its exchange and custodian platform.
Are Bitcoin loans a scam?
Bitcoin lending is still rife with uncertainty. There are a lot of players who have and continue to act in bad faith; BitConnect and Lendconnect are prime examples of this.
What are the top Bitcoin Lending Platforms?
|Bitcoin Lending Platform||Advantages||Disadvantages|
|Unchained Capital||• Get access to your loan in less than 48 hours|
• Smooth, clean interface makes the process simple
• Bitcoin stored in multi-sig custody
|• No private loans outside US|
• High minimum loan amounts
• Possibility of margin call
|SALT Lending||• No monthly minimum payments|
• Set pre-established loan terms
• Minimizes taxes as conversion to U.S Dollar is not required
|• The loan minimum of $5000 is too high as it means you will have to deposit $10,000 at 50% LTV|
• Limited assets can be deposited as collateral
• Not enough educational content
|Nebeus||• Good rates for lenders|
• Straightforward application processes
|• Limited information on loans|
• The fee may be high considering industry standards
|Bankera Loans||• Maintains a straightforward credit line application process|
• Accepts a relatively wide range of digital currencies
• Maintains extended credit limits and the loan repayment period of €1 million and 12 months respectively
|• Will only accept BTC and ETH as collateral if you wish to use more than 25% of collateral value|
• Will only support EUR fiat currency
|BlockFi||• Quick and easy cryptocurrency lending|
• Leverage your cryptocurrency for a cash loan
• 12 month loan duration
|• Minimum of $15,00 required in crypto assets|
• Interest rates are variable
|YouHodler||• Has a 90% LTV – One of the highest LTVs in the market|
• Offers a wide variety of digital assets to choose from
• You can get a loan in fiat or stablecoins
|• Low loan limit|
|Celsius Network||• Fee-free – the platform charges no fees or penalties|
• No lock up
• No minimum deposit
|• Interests for investors are lower than other platforms|
|Nexo||• It is powered by Credissimo – a leading European FinTech with a proven track record|
• Fully live platform with 256-bit encryption security
• No fee – fixed interest rate model
|• The 8% base APR is misleading as it is applicable only if you use NEXO tokens|
• Some people see it as a SALT rip-off
|Bitbond||• Few and transparent charges|
• Fixed interest rates
• No credit score is required for loan approval
|• 1-3% origination fee|
• You can only borrow up to $25000 which is quite low for a maximum
|CoinLoan||• They offer a great of 8% per year.|
• Immediate liquidity – you can undo positions at any time and request withdrawal of our capital.
• They are a regulated entity (Estonia).
|• Although it offers are great, the performance of its long-term operations has yet to be verified.|
• Just like other platforms, the LTV is intrinsically volatile
|CredEarn||• The interest rate is fixed for a 6 month term of a program||• They lack transparency|
• Limited payout options