People take loans out all the time for a number of reasons: to buy a house, to get married, or consolidate debt, just to name a few. But, when it comes to the crypto sector, loans are rather different than the norms of a centralized banking system. And that leaves us with questions.
- How do loans work in a decentralized economic system?
- Can a person partake in loans using Bitcoin?
- How do lenders make money off of crypto loans?
Our guide below will help answer these questions and more to help you understand everything you need to know about crypto loans.
What is Crypto Lending?
Crypto lending allows investors to increase the value of their assets and diversify their portfolios. There are two types of crypto loans:
- Crypto loans with collateral
- Crypto loans without collateral
Crypto Loans With Collateral – CeFi Loans
Loans on centralized platforms use collateral. Here, an investor would use their crypto to borrow fiat or cryptocurrency. Here’s how it would work.
- An investor has 1 BTC but is waiting for Bitcoin’s value to hit $50,000 again to cash out.
- The investor is in need of liquidity today.
- They can then take the Bitcoin they already have and get a loan.
- Once the borrower has paid off the total of their loan, their original amount of BTC is returned.
Crypto Loans Without Collateral – DeFi Loans
These types of loans use smart contracts on DeFi protocols like Ethereum. Since there is no collateral, borrowers will pay a liquidity fee on unused capital within their liquidity pool. One common type of loan with no collateral is a flash loan, where funds are borrowed and then returned within seconds. Flash loans have become popular amongst crypto investors because it allows them to profit on arbitrage opportunities.
Crypto Loans vs. Bank Loans
| Crypto | Bank |
| Competitive Interest Rates | High Interest Rates |
| Decentralized Loan | Centralized Loan |
| Low-Risk Collateral | High-Risk Collateral |
How Does Crypto Lending Work?
If you are in need of a crypto loan, you’ll need to follow these steps.
- Step 1: Know exactly how much you need to borrow.
- Step 2: Find a trusted crypto lender.
- Step 3: Create and verify an account.
- Step 4: Apply for the loan and agree to the terms and conditions.
- Step 5: Deposit your collateral
- Step 6: Receive your loan and exchange it for cash.
Can I Lend My Cryptocurrency?
Absolutely, and this is a great way to earn interest on your crypto, similar to how a savings account works. Interest rates on lenders who loan Bitcoin can be as high as 5%. It’s also important to note that interest rates will vary based on whether you are on a CeFi or DeFi exchange. Most crypto loans use collateral, so you will have that added safety net. You will incur fees for using the crypto exchange, so be sure you know all the ins and outs before agreeing to any paperwork.
How to Make Money By Lending Your Bitcoin
Lending your BTC as a crypto loan is easy. Just follow these steps.
- Step 1: Find a reputable crypto lending exchange.
- Step 2: If needed, create a new account and verify your identity.
- Step 3: Connect your crypto wallet if needed.
- Step 4: Send your Bitcoin or other digital assets to the platform.
- Step 5: Receive your interest.
Top 5 Bitcoin Lending Platforms
BlockFi
| Annual Percentage Yield: | 1-15% |
| Annual Percentage Rate: | From 4.5% |
| Minimum Loan Amount: | $10,000 |
| Fees: | 2% origination fee |
BlockFi is perhaps the most popular lending platform for crypto loans. Lenders can borrow up to 50% of their collateral’s value, and borrowers can earn up to 8% interest. Users will also find a crypto wallet and crypto exchange and can apply for a crypto debit card if warranted. The site offers additional security in that it has obtained a banking license and has obtained significant financial backing.
Nexo
| Annual Percentage Yield: | Up to 18% |
| Annual Percentage Rate: | From 0% up to 13.9% |
| Minimum Loan Amount: | $50 in stablecoins, $500 in fiat |
| Fees: | No origination fees |
Nexo has garnered a lot of praise for their lending services recently. Lenders can rejoice about the high level of insurance (up to $100 million) they will receive on this platform, and all users will benefit from the military-grade security it has. However, interest rate payments at Nexo are not as high as you might find on other platforms.
YouHodler
| Annual Percentage Yield: | Up to 11.8% |
| Annual Percentage Rate: | From 0% |
| Minimum Loan Amount: | $100 |
| Fees: | 1% for closing and reopening, 1.5% for extending PDL and increasing LTV |
YouHodler is a popular crypto lender based in Switzerland. In addition to strong security and high amounts for insurance, lenders can also benefit from earning interest on stablecoins and a high loan-to-value percentage. The only downside to YouHodler is that loans can only be received in USD, EUR, GBP, and BTC.
Crypto.com Lending
| Annual Percentage Yield: | Up to 14.5% |
| Annual Percentage Rate: | 1-8% |
| Minimum Loan Amount: | $100 |
| Fees: | None |
Crypto.com accepts a wide swath of various currencies for its crypto loans. The platform has incredible interest payments for both borrowers and lenders, and there are no minimum or maximum deposit limits. But, lending rates are on a tiered system and to access them you will need to stake CRO tokens. This lending platform is mobile only.
CoinLoan
| Annual Percentage Yield: | Up to 12.3% |
| Annual Percentage Rate: | 4.95% – 11.95% |
| Minimum Loan Amount: | $100 |
| Fees: | 1% origination fee |
CoinLoan offers borrowers affordable loans with flexible term lengths. Lenders will enjoy the high interest payments. There are no deposit or withdrawal fees on this platform. However, there are origination fees on loans here, you cannot purchase crypto with a credit/debit card, and there is a spread fee to purchase crypto that is much higher than other platforms.
Pros and Cons of Crypto Lending
| PROS | CONS |
| Overcollateralization | Centralized exchanges |
| No credit history required | Limited regulations / no government security |
| Easy to apply and fast to process | Digital assets are vulnerable to hackers |
| Attractive rates up to 10% | Volatile interest rates |
| No bank account needed | Liquidation risk for borrowers |
FAQ:
Can you get a loan on crypto?
Yes, there are a number of crypto lending platforms that allow you to use your crypto as collateral. The percentage you can borrow varies by platform ranging from 50% up to 90% of your crypto’s value.
Can I get a crypto loan without collateral?
Yes, you can get a DeFi loan without collateral. However, these types of loans are not prevalent on my exchanges, and the most common type is the rapid “flash loans” that are repaid within seconds. These loans are more beneficial to lenders looking to earn a bit of fast interest than borrowers.
How do I repay a Bitcoin loan?
You will need to pay off the total amount of the loan plus interest via the lending platform. You do not want to chance of defaulting on your BTC loan, as this will lead to you losing your collateral.