Bitcoin (BTC) has changed the game for investors and opened up many opportunities across financial markets, like crypto lending. Though cryptocurrencies started as niche oddities, with their rise in popularity and the resulting security of Bitcoin specifically, cryptocurrencies have begun to resemble most other available assets. This means you can now secure a loan with your BTC holdings.
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What is a Bitcoin Loan?
Bitcoin loans are simply loans secured with your BTC holdings. In most cases, you (as the one taking out the loan) utilize your BTC as collateral to provide the lender with sufficient safety to issue a loan to you. This loan works in the same way as traditional loans—you receive cash in your bank account, which you must repay with interest.
Unlike traditional loans, Bitcoin loans are done through the decentralized finance (DeFi) network rather than through a bank or other financial manager.
Crypto loans allow you to leverage your cryptocurrency holdings for a cash loan, which is a recent advancement in crypto exchange that has shocked financial markets. Many of these Bitcoin loans nowadays are taken out online, making them accessible to the general crypto holder.
How Much Can You Borrow with a Bitcoin Loan?
With a Bitcoin loan, the amount you can borrow is generally very flexible, with low minimum requirements and high maximums. This makes acquiring a loan of a size that best fits you relatively easy, regardless of the value you are looking for.
The specific amount you’re able to borrow depends on the value of your cryptocurrency/BTC portfolio (because that is the amount of capital you’re leveraging for collateral). The platform you’re using to take out your crypto loan. In many cases, the amount you’re borrowing, proportional to your total portfolio size, also changes the interest rate that accompanies your Bitcoin loan.
The Benefits of Bitcoin Loans vs. Traditional Loans
Bitcoin loans and traditional loans differ in several ways, making the former a viable, if slightly different, way of securing a loan. Bitcoin loans have four significant distinctions compared with traditional loans:
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Titan is an investment platform with a team of experts actively managing your portfolio based on your chosen strategy, including cryptocurrencies.
Alto IRA allows you to invest in stocks, bonds, mutual funds, ETFs, real estate, cryptocurrencies, and even gold for your retirement.
No Credit Checks
Online Bitcoin loan providers do not depend upon a positive credit score to provide you with a Bitcoin loan. Most providers, however, do have some form of assessment to ensure the security of their own capital with the person they’re loaning to.
These are called ‘trust scores’ and can be improved with verifiable documentation, including but not limited to invoices that contain your name and address, an official identification (such as a drivers’ license or passport), or even simply your social media account if it’s active enough.
Faster Approvals
Generally, Bitcoin loans are approved much faster than regular loans, given that they’re online and that the loan isn’t fully processed until the collateral, your BTC, has been verified. While the exact time for the loan to be approved depends on your trust score and the loan’s size, in many cases, loans can be approved and dispersed within seconds.
Borrow Cash or Digital Currencies
Platforms that offer Bitcoin loans typically also provide other cryptocurrency-related services, including holding and securing your crypto. This means that when the loan is approved, you can receive it in cash or as digital currency, whichever you prefer.
Interest Rates
The APR (annual percentage rate) for Bitcoin loans can be lower than standard personal loans. For example, companies offer crypto loans starting from 0% with a maximum APR of 13.9%. The strength of your interest rate typically depends on the loan-to-value (LTV) ratio, the ratio of the value of the loan you’re looking to take out against the total value of your portfolio, and your holdings of certain currencies.
How to Get a Bitcoin Loan
Getting a Bitcoin loan is usually straightforward. However, deciding on which platform to use is worth putting a considerable amount of research into. You should look at (at least) two significant factors before committing to a site: the APR of the loan and the safety of the issuers. While there are obvious benefits to choosing a platform with a low-interest rate, it’s essential to understand that great risks can come with using a provider that doesn’t have sufficiently safe systems.
Once you have chosen a site, finalizing the loan should be simple:
- Create an account with the platform.
- Improve your trust score with verifiable documentation.
- Choose the specifics of the loan you’re looking to take out (e.g., how much collateral do you have? What’s the value of the loan?)
- Complete your transaction by accepting a loan offer.
After completing all of these steps, you should have successfully received a Bitcoin loan.
