How To Get An Instant Bitcoin Loan
Learn about instant Bitcoin loans and how to start borrowing without credit checks. Find platforms with as low as 1% APR and flexible repayment plans.
Cryptocurrency has revolutionized several financial processes, including how people take out loans. Crypto-based loans now have more options than traditional loans, which can be difficult and time-consuming for borrowers. This makes it easier for people who own crypto to get loans.
Typically, one would wait 45 to 60 days to get a bank loan; however, thanks to blockchain technology, borrowers can access funds a lot faster and at cheaper rates. Also, one does not need to go through approval processes that require identity verification, bank statements, credit histories, and collateral, among other requirements.
But even though this way of getting money is easy, people still need to think about a few things before taking the plunge. Borrowers need a good understanding of how instant crypto-backed loans work, the necessary conditions, risks, the different platforms available, and their pricing and fee structures.
Here's what to know about instant Bitcoin loans for crypto holders looking for quick loans.
What Are Bitcoin Loans And How Do They Work?
A Bitcoin loan is a type of secured loan in which cryptocurrency is used as collateral. It works just like traditional loans, where one can borrow cash and pay it back over a specified period with interest.
Although Bitcoin loans are similar to traditional loans since they allow borrowers to access the funds they need for urgent expenses, they are fundamentally different. Their main difference is in the collateral borrowers have to submit. Traditional banks require borrowers to put up their cars, homes, or other physical assets as collateral, but Bitcoin loans only need bitcoin as collateral.
Interestingly, Bitcoin loans are easier to process due to the low borrowing requirement, and they arrive in the borrower's account usually within 24 hours or a little over that. Smaller loans with shorter terms are also available, and their APRs are lower than most bank loans.
Keep in mind that the amount of funds one can borrow depends on the collateral they can pledge since Bitcoin loans are overcollateralized. This is due to the fact that people who want to borrow crypto loans must put up more collateral than they are borrowing in order to protect their risky assets. The amount of collateral is determined by the loan-to-value ratio.
Loan To Value Ratio In Bitcoin Loan
Loan to Value (LTV) Ratio is a word for how much a loan is worth compared to the value of the collateral it is backed by. It means how much a loan is worth in relation to the asset that is used as collateral.
Traditional loan providers typically assess a borrower's creditworthiness using their credit score. This score is based on credit history checks carried out by third-party credit agencies. A higher credit score means a lower risk for the credit provider.
Similarly, crypto lenders use LTV to assess each borrower's lending risk. In this case, the lower the LTV, the lower the risk.
Most crypto lenders provide loans with a maximum LTV of 50% for 12-month terms, although others like YouHodler claim to offer up to 90% LTV on popular cryptocurrencies like Bitcoin.
An LTV of 50% means that one has to deposit crypto assets worth $20,000 to borrow $10,000, while a 20% LTV would require one to lock up $50,000 for a $10,000 loan.
Note that a lower LTV results in a lower interest rate, while a higher LTV would require borrowers to pay more in interest due to the lending risk.
Another essential aspect to note about LTV is the market volatility effect. Due to the unstable nature of cryptocurrencies, the value of a borrower's collateral can fall, causing the LTV to go up. To get the loan-to-value ratio back in line, one would have to raise the collateral or risk having to sell the property.
To be safe, people should keep an eye on their LTV, especially when prices change a lot, and make changes before the LTV goes over the platform's liquidation LTV or threshold.
Why Take Out A Crypto Loan?
People take out loans for different reasons. However, for crypto holders, there are some considerable reasons.
Crypto investors that prioritize holding on to assets for the long-term might want to take a loan if they run into an urgent need for cash. Note that cryptoassets can still appreciate in value even while locked up in a lending platform as loan collateral; hence, long-term investors might want to take this route instead of selling off their position.
Also, a crypto loan might make more sense for a borrower if he stands to pay more in capital gains taxes than he would pay in loan interest. It could be worth it if he has enough collateral to keep the LTV down and avoid liquidation.
Some expert crypto traders also borrow crypto to use in spot, margin, and futures trading. Even though it's not a good idea to trade with borrowed money, an experienced trader who wants to increase his positions or diversify his crypto portfolio to get the most out of trading may do so.
Therefore, taking cryptocurrency loans depends on a person's risk appetite and whether he has enough cryptocurrencies to pledge as collateral.
Advantages Of Crypto Loans
Crypto loans have certain advantages over traditional security-backed loans. Here are some of these advantages:
No Credit Score Required
Crypto loans do not require credit checks to prove one's creditworthiness. Borrowers who do not have a good credit history can still access financing when they need it through Bitcoin loans.
One simply needs to prove that he has enough crypto to cover the requested loan amount. This is done through collateral deposits in the chosen platform's wallet.
Fast Loan
Crypto loans do not take as much time as their traditional counterparts. Borrowers can get instant approval on loan applications and funds in their accounts within a day because there is no need for a series of checks and verifications.
This is a major advantage, as borrowers who need instant loans to cover urgent expenses can now access them. Even though the length of time it takes to get approved varies from platform to platform, it is much faster than the way loans are usually approved.
Lower Interest Rates
Borrowers can find lower rates on crypto lending platforms than they will find with traditional lenders. Platforms like Nexo offer as low as 1% on borrowing rates. However, the key to such a low APR is to keep LTV low. Even though the borrower would have to put up more collateral to get the loan, they could get the lowest interest rates.
No Tax Responsibilities
Normally, a crypto asset sale triggers a taxable event. The IRS treats crypto assets as other capital assets like stocks, and bonds. This means that a capital gain on such assets has tax implications.
However, crypto loans allow holders to unlock a fraction of their digital assets without incurring a tax liability. This is because there was no actual sale; the assets were sent to a lending platform as collateral.
Crypto Loan Risks
Crypto loans have certain downsides that borrowers must note before initiating one. They are as follows:
Market Volatility
Volatility is part and parcel of the crypto market. Asset prices can fluctuate dramatically, resulting in gains or losses for holders. This also affects collateral backing crypto loans.
As earlier stated, volatility can cause a borrower's LTV to go up, and if the loan is not paid back or repaid on time, the borrower's assets can be liquidated to cover the loan. Most platforms have a limit of 85% LTV, over which the position will be sold at a market price that may not be good.
No Guaranteed Compensation If The Platform's Security Is Compromised
Crypto lending platforms do not have FDIC insurance like traditional banks. This means that if there is a security breach or the platform falls down, the collateral can be lost for good.
But borrowers can reduce this risk a lot by doing a lot of research on a platform before using it. Some platforms have security measures in place, and insure deposits up to $100 million.
No Access To One’s Assets
Crypto borrowers select a loan term during which their assets will be locked on the lending platform. However, this can pose a challenge, especially in times of extreme price movements.
Borrowers will be unable to cash out if prices surge before the market corrects. They will also be unable to exit a position if prices fall significantly.
However, some lenders may allow borrowers to repay their loans earlier if they need to exit their position. But they will still pay the interest for the full loan term.
Not Available In All States
Certain regions have enacted laws prohibiting crypto trading and lending. This means that a borrower's location will determine if he can use a lending platform.
Also, some platforms are not available to people in some states. So, borrowers need to make sure that the platform they want to use is available in their area before signing up.
How To Get A Bitcoin Loan
Getting an instant BTC loan involves a few straightforward steps, which include:
Firstly, a borrower has to determine how much he can borrow with his cryptocurrency, how much collateral he can pledge, and the maximum LTV demand using the loan calculator on his chosen platform.
The borrower may want to check out other platforms to see if there are more favorable rates, fees, LTV, maximum and minimum amount, and collateral protection available.
He should then proceed to open an account on the chosen platform and go through the KYC checks and verification processes if required.
Next thing is to request a loan. He will be required to enter the loan amount, collateral, and LTV.
He would then deposit his collateral according to the platform's specified process.
Finally, the borrower will receive the loan in the requested currency.
At the end of the loan term, the borrower is to return to the platform and pay the interest first, then the principal loan amount. Keep in mind that borrowers who decide to repay their loan earlier will still pay the full interest for the specified loan term.
Where Can I Borrow Bitcoin Online?
There are a plethora of crypto lending platforms online, each operating differently. However, the best ones include Nexo and YouHodler. We will do a mini-review so that users can know what to expect from these platforms.
YouHodler
YouHodler is a fintech company that offers different high-quality services related to digital assets. It is one of the top platforms facilitating instant Bitcoin loans.
The company offers competitive rates and the highest loan-to-value ratio available in the market.
Pricing and Fees
YouHodler is the best place to get a crypto loan because it offers loan-to-value ratios of up to 90% on a wide range of crypto coins, especially BTC loans. However, their interest rates are as high as 13.5%. It also has a minimum loan amount of $100.
Getting Started on YouHodler
As part of the setup process, users must send scanned copies of their IDs so that they can be checked. They will then be able to make a deposit and apply for a loan using their crypto collateral.
YouHodler loan approval takes only a few seconds. When it is finished, the requested loan amount is added to the borrower's wallet.
Borrowers can cash out loans through two methods: bank transfer and credit card withdrawal. Borrowers can also use the exchange feature of YouHodler to turn the cryptocurrency they borrowed into the currency or coin of their choice.
Why Should You Borrow From YouHodler?
YouHodler has 30-day short-term loan offers. Borrowers can also extend to 60 or 180 days. Also, their support team is excellent and available to address any platform-related concerns.
Furthermore, in addition to repaying the loan, users are given three additional exit options: they may choose to close their position without repaying the loan, manage loan duration, or exit with 85% of their asset value on 90% LTV loans. They also offer other crypto services that users might find useful.
Downsides
Long-term loans typically have high-interest rates, owing to YouHodler's higher LTV. Also, customers from the United States cannot use the platform's services.
Nexo
Nexo is a platform with many uses. It offers both secured loans and services for investing in cryptocurrencies. They provide one of the safest ways to lend and borrow over 38 cryptocurrencies, with the digital asset security expert, BitGo, insuring every account.
Pricing and Fees
Nexo's cryptocurrency lending ranges from $50 to $2 million. On the other hand, the loan-to-value ratio ranges from 20% to 50% of the deposited assets. One can possibly borrow with rates as low as 0.001% on this platform.
Getting Started on Nexo
One will need a Nexo Bitcoin wallet to initiate a loan application. It is fairly simple to open one. Begin by signing up and providing the required information. Then, fund the wallet with cryptocurrency, in this case, BTC.
Borrowers will have to verify their information in the "My Profile" section before they can apply for a loan and wait for it to be approved automatically. Loans are withdrawable at any point, and the process generally does not take long.
Why Borrow With Nexo?
Nexo users can feel safe and professional because their funds are insured for up to $775 million. The platform also provides access to multiple cryptocurrencies, including stablecoins.
Nexo does not have a limit on crypto deposits, and borrowers can also repay part or all of their loans at any point.
Downsides
Their support team frequently responds to user inquiries with automated messages. If a user is unsure about what he is looking for, this can cause confusion.
CoinLoan
CoinLoan is another platform that helps users manage their crypto assets. It also gives borrowers a level of security that is hard to beat and lets them cover their losses if they don't pay their interest on time.
The site is not only meant to help crypto investors manage their digital assets, but it also keeps the collateral that borrowers put up completely safe.
Pricing and Fees
Pricing and fees vary depending on the loan terms. Borrowers will be charged origination fees and will have access to interest rates starting at 4.5%. The LTV ranges between 20 and 70%.
Getting Started on CoinLoan
The CoinLoan lending platform application process is very similar to any other. It only takes a few minutes to set up an account and have it verified.
Once that is completed, users are to create a custom loan with their own parameters. This is done by selecting the loan amount, term, limit, interest rate, repayment options, and supported crypto collateral. After entering all of the required information, the borrower would summarize his loan offer and click "Loan Agreement," which would finalize and create the loan offer.
Note that one must fund his wallet with BTC collateral to access the loan. The amount a borrower can take depends on the market value of their collateral.
Why Borrow Through CoinLoan?
All funds locked in CoinLoan's protocol are safe, so you can be sure to get your collateral back at the end of a loan term. They also offer some of the best rates in the market. Their support team is also very quick to answer questions and clear up any confusion about how the platform works.
Downsides
The main concern for this platform is that it may suffer from a lack of liquidity. This is due to the fact that they have fewer investors than other top platforms.
When Will a borrower Get His Collateral After Paying Back a Bitcoin Loan?
Most Bitcoin loans are based on smart contract agreements. This means that the process is automated. Once borrowers repay their full loan amount and the interest accrued, the collateral will be refunded instantly to their wallets.
This also applies if they pay off the loan before the end of the loan term. Thankfully, most crypto lending platforms offer flexible repayment plans. They allow monthly payments and lump payments.
What Happens If a Borrower Cannot Repay His Instant Loan At The Due Date?
Different platforms have specific approaches to overdue loans. But most platforms will give an overdue time between 24 and 168 hours, depending on how long the loan is.
Those who don't pay back their loans on time will have to pay more in interest until the end of the extra time. If borrowers still fail to repay their loan, the platform will liquidate their collateral to cover the loan.
Can One Get An Instant Bitcoin Loan Without Collateral?
A typical Bitcoin loan will always require a collateral deposit. This serves to protect lenders against default.
Although certain platforms may advertise crypto loans without collateral, this is mostly a scam. It's safer to use credible loan providers who will secure their users' identities as well as the assets used as collateral.
Conclusion
Bitcoin lending is a relatively new financial instrument with its own set of risks. It lets crypto investors get cash when they need it without having to sell their Bitcoin, but there are some restrictions.
But these caveats are not enough to stop anyone from embracing the digitalization of the financial system. Overall, Bitcoin loans provide advantages that traditional lenders can only dream of, such as fast processing times and the lowest possible interest rates.
Borrowers should consider the advantages and disadvantages of obtaining a Bitcoin-backed loan, understand what they are, and select one crypto loan platform that is appropriate for their needs and collateral