Crypto loans operate much like traditional bank loans but with a unique twist: you use digital currencies as collateral instead of physical assets. If you own cryptocurrencies like Bitcoin or Ethereum, you can leverage them to secure a loan.
Imagine it as a modern-day pawnshop for your digital wealth. You deposit your crypto, and in return, you gain access to funds.
The loan amount is typically lower than your crypto’s total value, reflecting the loan-to-value ratio (LTV). However, different lenders offer varying borrowing amounts.
While numerous cryptocurrencies are accepted as collateral, bitcoin and Ethereum are the most popular choices. Some lenders even offer stablecoins instead of traditional currencies.
These stablecoins are designed to maintain parity with assets like the US dollar, offering the flexibility to convert them into cash when needed. Repaying the loan varies from one lender to another, often spanning several years, with interest rates lower than personal loans or credit cards.
You regain ownership of your crypto assets if you meet repayment terms.
A Step-By-Step Guide To Obtaining A Crypto Loan
Step 1: Choose A Lending Platform
There are several lending platforms you can choose from. However, you must conduct deep research into any platform before using it. We will be using YouHodler as an example platform:
YouHodler is a reputable platform that facilitates quick crypto borrowing. It allows you to borrow up to 90% of your crypto’s value for up to a year.
Here are some reasons why YouHodler stands out:
- Accepts over 40 different cryptocurrencies as collateral.
- Offers loans in various currencies, including the US dollar, euro, British pound, Swiss franc, and stablecoins.
- Grants up to a year for repayment.
- Approves loans instantly.
- It doesn’t require credit checks, making it accessible to those with various credit histories.
Step 2: Transfer Your Crypto To YouHodler Wallet
Begin by transferring your chosen cryptocurrency to your YouHodler wallet. The platform supports many cryptocurrencies, ensuring a seamless deposit experience without fees.
Step 3: Apply For A Crypto Loan
Navigate to the “Loans” section, click “Create a new loan,” and use the platform’s crypto loan calculator to determine your desired borrowing amount. Unlike other platforms, YouHodler provides instant loan approval, eliminating the need to search for a lender.
You can receive your loan in various currencies, including stablecoins. Consider this step as temporarily selling your crypto to YouHodler. Over time, you’ll repurchase it.
For instance, YouHodler might offer a loan backed by 9863 GALA collateral, allowing you to borrow 217 USD. The minimum borrowing threshold is 100 USD.
Opting for a 90% LTV incurs a daily fee of 0.0274%, totaling 0.06 USDT for the 217.05 USDT crypto loan.
Step 4: Withdraw Your Loan
You can access your loan balance in your YouHodler wallet. Use it like any other asset in your wallet, choosing to withdraw or convert the balance.
Step 5: Manage Loan Payments
The daily loan fee accumulates from loan initiation, and it’s deducted from your wallet in the borrowed currency. Should your wallet lack funds, the system adds the fee to your repayment amount.
Repayments are only applicable for active loan days.
Step 6: Repay Your Loan And Retrieve Collateral
Repaying your loan is simple. Choose your repayment time and method. You can use funds from your wallet, initiate a bank wire transfer, employ AdvCash, or even use collateral for repayment.
Remember, insufficient wallet funds increase repayment amounts. You regain control of your crypto collateral once you repay the principal and interest.
Step 7: Manage Your Loan On Youhodler
YouHodler offers advanced features to manage loan conditions in response to market shifts. You can adjust your loan-to-value ratio, extend the Price Down Limit, close the loan without repayment, or set a take-profit price.
These features are available to borrowers and traders.
Factors To Consider
Several factors warrant consideration when pursuing a crypto loan. The top ones are:
Smart Contract Risk: Robust testing on DeFi platforms mitigates smart contract risks.
Platform Liquidity: Adequate platform liquidity cushions under-collateralization risks.
Impairment Loss: Be wary of assets depreciating below their lending value.
Collateral Listing Quality: Ensure platforms offer protection against poor collateral choices.
Security and Regulation: With evolving regulations and security risks, exercise caution and store funds securely.
Ultimately, entering the world of crypto loans demands prudence. You must understand the platform, risks, and repayment terms before proceeding. By engaging cautiously and selecting reputable platforms, you can tap into your crypto assets for financial leverage.