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The concept of digital currencies has well and truly hit the mainstream. Even if the concept of crypto has become a bit of old hat, however, it’s still spawning all sorts of new ideas.
The latest craze to come out of the crypto world is crypto loans. This newfangled hybrid of lending and digital currency is gaining traction — for better or worse. But is mixing personal loans and volatile cryptocurrency a good idea? And where can you even find crypto loans? This guide will answer those questions, and more. What is cryptocurrency?
Cryptocurrency is a digital currency aiming to eliminate the reliance on central banking through publicly distributed ledgers known as blockchains. It is traded through online exchange platforms using electronic tokens and keys.
In theory, crypto is the widely distributed, low-cost solution to many of our banking woes.
In practice, crypto is a volatile asset most widely used for speculative investing. But that has been slowly changing over the last few years. More and more retailers are starting to accept cryptocurrency payments. And you can even use it to pay taxes in a few places.
As crypto grows in popularity (and utility) millions of Americans are interested in giving crypto a shot. Studies show that the majority of U.S. adults — 56% of them, in fact — own or have owned crypto at one time. And about 41% of the holdouts intend to jump on the bandwagon soon.
There are even new ways to finance your investments, including crypto credit cards , a product 61% of Americans have shown interest in trying. And now the next new thing, crypto loans, are starting to pop onto the market. What are crypto loans?
First things first, we’ll discuss what a crypto loan actually is. On the surface, it sounds like a personal loan you use to buy cryptocurrency. But it’s a bit more complicated than that.
Crypto loans are secured loans offered by some crypto brokers and wallets. They use your existing cryptocurrency assets as collateral. In other words, crypto loans are secured loans that let you stake crypto you already own to reduce your interest rates and customize your repayment.
For example, a crypto loan might let you borrow up to 50% of the value of your crypto deposits. You can use the money you borrow to invest in additional cryptocurrency. In some cases, you can withdraw the borrowed funds as cash to fund other personal or business purchases. What are crypto flash loans?
Flash loans are a niche type of loan unique to the crypto market. They are unsecured loans that can be taken out for a single crypto transaction. They’re called flash loans because that’s a fair description of their duration, as flash loans need to be repaid before the transaction ends. Flash loans are mostly used for arbitrage opportunities (when a crypto is valued differently in two markets at the same time). They are expert-level tools and not for the average investor. Is it a good idea to buy crypto with a loan?
This is the key question you should ask yourself before getting a crypto loan. Because while there are a few pros to the process, there are also a number of cons. Pros of crypto loans
There are a few benefits to crypto loans that may appeal to some borrowers:
There’s no credit check. Crypto loans are secured by your existing crypto, and they never exceed the value of that collateral. As such, you won’t need to undergo any kind of credit check in most cases. As long as you have an active wallet account with the exchange and enough collateral, you can qualify for the loan. This is a big contrast to traditional loans, which can be hard to get with no credit .
Interest rates can be fairly low. With regular personal loans, a good interest rate depends on your credit history and loan terms. With crypto loans, your credit won’t matter. And because they’re secured loans, they tend to have fairly low interest rates. Some offer rates below 10%.
Time between application and funding can be hours. You won’t be dealing with traditional banks or underwriters. Plus, your loan is fully secured. This means you can go from application to approval to funding all on […]
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