Crypto Loans: How Do They Work and What Are The Benefits?

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    Since it first appeared in 2008, cryptocurrency has gotten much attention. Everyone believed it would never work because the currency didn’t physically exist, but nowadays, cryptocurrencies manage to get incorporated into our daily lives. Bitcoin was the first cryptocurrency that appeared on the market, but many more appeared to take over the crypto world. 

    Over the years, people became more open to cryptocurrencies and started buying and using them. Today, anyone who owns cryptocurrencies can shop online with them, purchase real estate, and even online casinos embrace the cryptocurrency payment method. Cryptocurrencies have been accepted in many institutions that even figure crypto-backed loans started existing for people who want to lend cryptocurrencies from lenders. What sounded like something impossible ten years ago is now incorporated everywhere, and some even believe that cryptocurrencies will eliminate the usage of physical currencies. 

    What Are Crypto Loans?

    A crypto loan is just like any other loan. The cryptocurrencies you have are used as collateral in exchange for money, and you have to pay interest. Once you pay the full amount of money and the interest, you’ll get the number of cryptocurrencies used as collateral. The interest rates with crypto loans are really low compared to credit cards and personal loans; they get as low as 0% up to 13.9%. The interest rate depends on the lender. 

    What makes crypto loans unique is that lenders don’t imply restrictions on how you can use the funds. They are similar to personal loans; if the amount is big, you can use it to purchase a car, house, or start a new business. Crypto loans are excellent for people with many cryptos who need cash fast, without selling their crypto. The only downside is that some lenders can’t give you cash directly; the loan can be in gold or stablecoin. This is not that bad, since you can exchange both for money. 

    How and Where to Get a Crypto Loan?

    Before you even consider applying for a crypto loan, you must own cryptocurrencies that are accepted for loans. Some crypto-lenders accept all types of cryptocurrencies, while others accept only certain types. Check out with the lender first to see whether they accept the cryptocurrency you own. When choosing a lender, make sure you find a reputable lender that offers the best conditions. Every lender has its application process, so go over it carefully and check the terms and conditions. Once you choose a lender, it’s time to start the application process. To complete the process, you must verify your identity and crypto holdings. Some lenders might even ask you to open a wallet with your cryptocurrencies on their sites. On the other hand, to apply for a crypto loan, you don’t have to give proof of your credit check. The next step is to select the loan, the loan amount, and the repayment terms. 

    There are two types of crypto loans:

    • Centralized Finance Crypto Loan: loan commonly known as CeFi loan in which the lender has total control over your cryptocurrencies until the repayment term
    • Decentralized Finance Crypton Loan: this loan is known as the DeFi loan and has higher rates than the CeFi loan. This type of loan relies on a smart contract, and it’s great that you’ll be able to retain full control over your crypto assets. This doesn’t mean that lenders are not protected because they can take immediate actions against you anytime you miss a payment. 

    Although crypto loans are a good idea for people who own cryptocurrencies and need money fast, these loans also carry a certain risk—some risks include hacking, cybercrime, and lender bankruptcy. Unfortunately, no one can guarantee compensation if your funds get lost in a security breach. Another risk is that lenders can liquidate your assets if you miss a payment. This is why you must choose a secure lender since you’ll be given access to your crypto account. Do thorough research before you do anything, and always read the terms and conditions. 

    Pros and Cons of Getting a Crypto Loan

    Let’s consider the benefits and disadvantages of getting a crypto loan. 

    Pros:

    • Crypto loans are approved fast
    • They don’t require credit checks
    • They have low-interest rates
    • You won’t have to sell out the cryptocurrencies you own
    • Crypto loans can be used for just about anything
    • The loan terms can be from 7 days up to 12 months

    Cons:

    • You need to have an existing crypto portfolio
    • When you miss a payment, the lender can liquidate your assets
    • If you have a CeFi loan, you won’t be given access to your crypto assets

    Conclusion

    It’s a fact that cryptocurrency will only move forward in the future and might get incorporated into our everyday lives. Some even believe that cryptocurrencies are the future currencies and that people will stop using other currencies and use only crypto. When it comes to crypto loans, they’re an excellent option for crypto owners who need money fast and don’t want to sell their crypto. Before you apply for a crypto loan, remember to find a reputable and secure lender and check the terms and conditions.


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