Cryptocurrency has its price volatility, scams, and other issues to solve but getting a crypto loan is one of its promising endeavors.
Crypto users/holders can get access to a crypto loan with their collateral. You can purchase a property, pay rent, and make payments for many things via funds from crypto loans. Isn’t that cool to hear?
Well, you can get a crypto loan today from crypto lending platforms and crypto exchanges. Before we go into details about how you can get a crypto loan today despite the market downturn, let’s see learn more about crypto loans.
What is a Crypto Loan?
A crypto loan is just like a traditional loan however your crypto assets are used as collateral to access the loan in this case. The loan is taken in exchange for liquidity from a lender that will be paid back in installments.
The crypto asset that is being used as collateral is to be returned once the loan is fully paid. A crypto loan could be loan-to-value [LTV], which is the percentage of the crypto you are using in this regard. This, however, differs in lending platforms or exchanges.
The duration of the loan terms could be in days, months, or a year or more. The interest rate is very low compared to personal loans and other forms.
Types of Crypto Loans
Crypto loan is of two types, they are centralized finance [cefi], and decentralized finance [deFi]. They are discussed below-
1. Centralized Finance [CeFi]
In this type of crypto loan, crypto holdings are controlled by a central authority during the repayment term. It is referred to as a custodial loan as it is in the custody of someone other than the owner. Many of the crypto loans today fall under this type of crypto loan.
2. Decentralized Finance [DeFi]
Decentralized means that there is no central authority. So in this case, a smart contract is being used to ensure that loaners follow the requirement. It is non-custodial which means that the borrower is still in control of his/her crypto asset[s].
However, a lender can take automatic actions against a borrower’s account if he/she defaults or miss a payment. In this type of crypto loan, the interest rate is higher compared to that of cefi.
What Crypto Assets Can Be Loaned?
As stated earlier, you need to own/hold a crypto asset to be able to get a crypto loan. If you have an account with Binance or other lending platforms such as Aave, Abracadabra, and so on, your crypto holdings can be used to take a loan.
Top crypto assets such as Bitcoin[BTC] and Ethereum [ETH] are the most popular used for taking a crypto loan. Several other altcoins such as Cardano [ADA], Tezos [XTZ], Binance Coin [BNB], and so on are used as crypto-collateral loans.
What Can a Crypto Loan be Used to Get?
A borrower can make use of the crypto loan at his/her discretion. It can be used to pay fees, house rents, purchase properties, exchange for other crypto assets, and so on.
Lending platforms and exchanges can either pay you in cash directly or via stablecoin pegged to the US dollar e.g. USDT, which can be exchanged in cash into your account.
It’s not all crypto exchanges or lending platforms that allow users to exchange cryptocurrency for another in this regard. It is very important to make research on these platforms before getting a crypto loan.
How to Get a Crypto Loan in 2022
Getting a crypto loan is very easy as long as a user meets all the requirements. It takes less than ten minutes to get a crypto loan. Using a centralized exchange like Binance, listed below is how to get a crypto loan today via its Crypto Loan page.
1. Once you have an account with Binance, you can go ahead to input the amount and the crypto asset you want to borrow.
2. The next step is to choose the crypto asset you want to use as collateral.
3. You can then select the duration of the crypto loan which could be in days, months, or a year.
4. Click ”Start Borrowing Now” once you are satisfied with the details you provide for the loan.
Is there any Risk with Crypto Loans?
Crypto and its endeavors are always without risk, especially for its high volatility. Crypto loans are not without a high risk of liquidation depending on your collateral. This is because the price of the crypto asset can drop at any time.
The smart contracts that are prominent in defi loans are also vulnerable to attack. This can lead to the loss of your loaned funds or collateral.
Diversifying your portfolio by choosing other crypto assets is good but not in the case of lending. This amount is an extra risk to your portfolio.
Things to Know Before Getting a Crypto Loan Today
There are always important steps to take before jumping into any crypto activity/endeavor. In the case of crypto loans, especially in this market downturn, there are things to know before getting a loan. They are discussed below.
1. There is Risk with Handling Over Your Crypto Assets
You need to understand that it is very risky to hand over your crypto assets to someone else or a smart contract. This is because smart contracts as well as exchanges can be vulnerable to attack. This means that you could lose your crypto asset once it leaves your wallet if care is not taken.
2. Study the Crypto Market Before Getting a Loan
In a market situation like this, where the price of crypto is down, crypto assets are locked up. This makes it impossible to react to the downturn. Users also need to study the lending/borrowing platform especially if it is new.
3. Make sure you read the Loan Terms and Conditions Before Accepting the Loan
Lending platforms and exchanges have differences in their terms and conditions for getting a loan. As you can borrow up to 50% of your crypto’s value with centralized platforms like Binance, other platforms can borrow you up to 90%. Make sure you don’t skip this aspect when getting a crypto loan.
The Bottom Line
Getting a crypto loan in 2022 is possible and very easy once you have a crypto holding. Bitcoin and Ethereum are top on the list of cryptocurrencies you could use as collateral to get a loan. Like every other crypto endeavor, getting a crypto loan is very risky, especially in a market downturn.