Many crypto-asset owners with a long-term investment holding can be forced to sell it for some reason. Fortunately, they can use their crypto assets as collateral and get a loan. In this way, they can maintain the ownership of their assets as well as get access to funds for fulfilling their needs.
Crypto supported loans are termed as crypto loans. You can get loans against a variety of crypto assets like Bitcoin, Ether, or Litecoin. Apply for a loan and soon your funds get directly transferred to your wallet [in 90 minutes] or bank account [in 2 minutes]. Besides, the crypto loan will not affect your credit scores.
What can the crypto loan be used for?
Crypto backed loans can be utilized for a lot of purposes like –
- Buying home
- Investment diversification
- Incur travel expenses
- Business funding
- Refinancing debt and more
Crypto loan – Its facts and functions
- Application for crypto-backed loans is a simple and hassle-free process.
- The application gets reviewed and then a loan offer is sent with details on how your loan offer was calculated [check the interest rate].
- Your crypto asset gets used as a security or collateral.
- 60% of crypto-asset value can be borrowed as a loan.
- Loan to Value [LTV] offers range from 20% to as high as 50%. Low LTV needs more crypto assets as security, while high LTV requires less.
- After approval of the loan offer from your side, you can either collect the funds on spot in cash or have it transferred to your bank account or wallet.
- A loan can be kept as long as the borrower needs it.
- You will need to pay a monthly premium for as long as you repay the complete loan amount.
- Interest rates depend on the borrowed amount, location, and credit history.
- As soon as you repay the loan, you can collect your crypto asset.
How does your crypto assets get stored?
It is kept in cold storage. If crypto rates drop in the market, you will receive a margin call. The crypto coins will be liquidated at the exchange. The borrowers must top the collateral when the margin call comes closer to avoid their crypto-asset getting sold. You can add collateral in crypto or cash.
Therefore, while evaluating the LTV, lenders determine an adequately conventional rate. This helps their clients get limited margin call exposure when the crypto market experiences extreme volatility.
Example of crypto loan
Assuming that the value of 1 Bitcoin is $10,000 and the lender approves you 60% that is $6,000. Suddenly, there is a drop in the Bitcoin price from $10,000 to $7,500 then you get a margin call. Wondering what’s a margin call?
A margin call prompts that liquidation rate is getting close, so you need to increase your collateral to reach a sufficient margin and thus avert liquidation. You can increase your collateral using either fiat currency or cryptocurrency.
In case you don’t or cannot then the lender will sell your collateral to exchange for $6,200 to $6,500. The balance will be returned to you as soon as the transaction gets recorded.
Balance = Owing principal + outstanding interest – Selling rate
On the other hand, if the Bitcoin price increased from $10,000 to $14,000 you can request extra funds. In this case, around $2,500.
Borrow crypto-backed loans without losing your crypto!