As crypto lending is a relatively new system of borrowing and lending crypto values, many crypto users still don’t fully understand how it works. Are crypto loans the same as fiat loans? And where do you even get such a loan?
If you’re already familiar with a bitcoin loan, you might have heard about lending platforms. But if you want to be successful at crypto trading, you must fully understand how it works and which blockchain lending platforms are reliable.
That’s why we’ve prepared this guide to outline how crypto lending works, what to expect from it, and where to get your first crypto loan.
What Is Crypto Lending?
When people get a loan from the bank, the fiat money they get comes from the bank itself. However, the situation is a bit different with crypto lending.
Crypto lending is a peer-to-peer system of borrowing and lending money, meaning that users borrow crypto values from other crypto owners. This kind of trading is possible because of the bitcoin lending websites that act as intermediaries between two individuals interested in crypto lending.
Most of these platforms offer an instant bitcoin loan. So there’s no need to wait from for a long time before you see money in your wallet.
The interest rates on these platforms are competitive. Therefore, it’s a good idea to learn about them before considering crypto loans.
How Do Crypto Loans Work?
Let’s say you already have some cryptocurrency, but you’d like to get more without withdrawing it. The solution is borrowing from another crypto owner.
That said, individuals who’d like to borrow money this way need to use a blockchain lending platform. They must also deposit their cryptocurrency as a guarantee that they’ll pay back everything they borrow. It’s worth noting that some platforms offer a no collateral crypto loan, meaning borrowers don’t need to pledge their assets as a guarantee.
However, operating on such bitcoin lending websites requires more crypto lending knowledge and skills.
Whatever service you use, know that it will display your loan to investors, intent on earning interest on their cryptocurrency. Depending on the lending platform, the interest rates can be good enough to earn a nice sum from giving crypto loans.
Unlike traditional bank loans, multiple investors can be involved in one crypto loan. The final step of finishing the deal is making a smart contract between the borrower and lender. Such a document ensures the transactions proceed accordingly. The smart contract usually states the loan period, the loan amount, and the interest rate.
What Are the Advantages of Crypto Loans?
Cryptocurrencies and crypto lending have grown increasingly popular in recent years. More and more people trust this kind of a system over those offered by traditional financial institutions. This suggests that an instant bitcoin loan boasts certain advantages. But what are they?
Crypto loans are a fast way to borrow money or earn interest. The whole process lasts no more than a couple of minutes. If you went to a bank, you’d have to provide the necessary documents and wait some time before the loan is approved.
No Need for Credit Checks
If you’ve got bad credit, the chances of getting a loan from a bank are almost non-existent. But that isn’t the case with crypto lending. Crypto loans aren’t only for those with good credit. Rather, anybody can get them without any problems.
No Minimum Payment
Unlike traditional banks, most lending platforms don’t have a minimum payment policy. That means that borrowers don’t need to pay a certain amount back to avoid facing penalties.
Everything Is Digitalized
The digitalised property of cryptocurrencies and crypto lending attracts most people. Therefore, all loans are transparent and crypto lenders and borrowers can view them at any time.
Lending platforms deal with serious transactions that can include large sums of money. That’s why they need to ensure all transactions are secure. Although these lending sites don’t have the same approach to security levels, the ultimate aim is making sure hackers don’t interfere with the loan and cause financial damages to the borrower and the lender.
No Middle Man
Crypto lending is a peer-to-peer system that doesn’t require the presence of a middle man. All transactions happen between two parties and are secured with a smart contract.
Investors deal with crypto lending because of the interest rates. Depending on the platform, these rates can help them earn you a lot of money.
Crypto Loaning Tips
Crypto owners shouldn’t take crypto loans lightly. They need to familiarize themselves with the cryptocurrency terms and learn about crypto lending.
But many people are impatient to borrow money with the help of lending platforms. They often end up losing money because they aren’t fully acquainted with the crypto lending system. To avoid that, we’ll provide crypto loaning tips to ensure you know what you’re getting yourself into.
Learn About Crypto Lending
As mentioned, the first step in ensuring the crypto loan process goes as smoothly as possible is to learn about crypto lending. It’s crucial you find out what exactly it entails and who is involved in the process. That way, you’ll have a clear idea of what to expect. Don’t get involved in the crypto lending until you’re sure you fully understand how the process works.
Explore Lending Platforms
Crypto lending happens through the lending platform. Most crypto owners are overwhelmed with the variety of options out there. Although each of these sites operates similarly, they do differ to some extent. For example, some platforms might offer better interest rates. Others allow users to deposit and borrow various cryptocurrencies. For those reasons, it’s necessary to compare crypto loans.
To give you a head start, we’ll provide a list of the most popular lending platforms:
Nexo is a lending platform with top-notch security. Borrowers deposit their crypto assets into the Nexo Wallet that BitGo repository secures. Once Nexo confirms the collateral, it then determines a loan-to-value ratio. Nexo borrowers decide whether they want to withdraw fiat money or stablecoin.
The great thing about Nexo is that it supports numerous crypto currencies and has some of the best interest rates.
BlockFi has a great, easy-to-use platform, suitable even for beginner crypto borrowers. BlockFi also has a mobile app, so you can try crypto lending on your phone, too. They offer 8.6% interest rates. It’s worth noting that users can use only Bitcoin, Litecoin, and Ether as collateral.
Celsius Network is another popular digital asset lending platform. They support a variety of crypto currencies and don’t require a minimum deposit. The loan-to-value ratio on this platform can range from 25%-50%.
Learn About Volatility
Generally speaking, cryptocurrencies are more volatile than fiat money. Their price value can significantly drop or increase during 24 hours. When dealing with crypto loans, learning about their volatility is crucial. It’s also important to remember that the crypto value you deposit or get from the lender can change its value at any time. Such changes can cause significant financial loses.
Check the Lending Platform
Every reliable lending platform should utilise HTTPS encryption. It enables you to browse sites safely. So make sure the platform you select relies on such technology. As obvious as it seems, always confirm the domain name is correct. That way, you’ll know for sure that you’re using the right lending platform.
Don’t Give Sensitive Information
If you get a message asking you to submit a password to some account, or two-factor authentication codes, don’t fall for it. It’s usually a phishing method designed to deceive you.
Crypto loans are an attractive option for those who need money quickly. The great thing is that you don’t even need a good credit record to get a loan. However, like with a traditional loan, you must be aware of its terms. Don’t borrow money unless you’re absolutely sure you’ll be able to pay it back on time.
Moreover, don’t borrow the whole amount you qualify for. Such behaviour could push you into debt.
Finally, read the smart contract carefully and remember the payment due date. If you don’t pay the loan on time, the lending platform will liquidate your collateralised assets.
Following the news related to the crypto eco-system, comparing interest rates, and avoiding lenders that offer poor terms is crucial. This allows you to get the best deal on a loan.
Keep Track of Loans
If you’ve borrowed assets from various investors on different platforms, you should keep track of all of them. Make sure you know the due date of each payment, interest rates of every loan, and the terms of the deal.
Such records can remind you about vital details. If you’re organised, you won’t have issues borrowing again in the future.
Crypto loans are an attractive solution both for borrowers and lenders. While borrowers can obtain money quickly, lenders can earn good interest rates. But the crypto lending world is volatile, so familiarizing yourself with cryptocurrencies and choosing the right lending platform is crucial. Just as importantly, it’s vital to compare crypto loans to get the best deal.
We hope the tips we’ve mentioned here will help you make a smart decision regarding crypto loans. By keeping these tips at the back of your mind, you’ll have much better crypto lending skills.