Cryptocurrency lending is similar to ordinary loans. A lender loans cryptocurrency to a borrower, who then repays that amount within a specific time period with interest. The lender of cryptocurrency can be an individual or an institution. Ordinary loans lend fiat, while cryptocurrency loans lend cryptocurrency.
Lending cryptocurrency is beneficial to the lender as well as the borrower.
For lenders – You can earn additional income on your crypto holdings. You can charge interest from the borrower for lending your cryptocurrency.
For Borrowers – A good credit history is not a requirement for cryptocurrency loans. If you are struggling to get an ordinary loan, a cryptocurrency loan could be your only option.
Different Types of Cryptocurrency Loans
There are 2 main types of cryptocurrency loans. Depending on the platform you use to obtain a cryptocurrency loan, they may support one or both types.
Loans that lend you cryptocurrency – These types of loans lend you cryptocurrency if you meet certain criteria. Usually, they ask for evidence of financial capacity and your government ID, among other things.
Loans that take cryptocurrency as collateral and lend you fiat – To obtain this kind of loan, you have to offer a certain amount of cryptocurrency as collateral. Depending on the platform you use, cryptocurrencies you have to offer will be different. Some platforms of this type lend you cryptocurrency as well as fiat.
Bitcoin and cryptocurrency enable you to transact directly with other users, without having to go to a central bank. If the lender and borrower of cryptocurrency both own a wallet, they can organize a loan between them.
There are platforms that match lenders with borrowers. Depending on the platform, lenders can set the highest interest rate they are willing to pay, or the platform determines the suitable interest rate, based on your financial capabilities. These platforms can connect you with other individuals or institutions that provide cryptocurrency loans.
Depending on the platform, if you are a lender, you can browse through all borrowers and select the borrower you want to lend to. You can also create your own lending offer with the minimum interest rate you are willing to accept and the cryptocurrency you are willing to take as collateral. Similarly, borrowers can create their own offer with their own conditions.
Platforms take a fee for brokering these types of services. If you want to become a lender or borrower of cryptocurrency, be aware that different platforms have different requirements; but the basic procedure is as follow:
How to Lend Cryptocurrency?
First, you need to signup to one of the lending platforms. Most of the platforms require you verify your ID. They may ask for additional details depending on the platform.
Some platforms have very strict criteria to become a lender. For example, you may be required to qualify as an accredited investor with the SEC.
How to Borrow Cryptocurrency?
Step 1: Sign up to cryptocurrency lending platform
Step 2: Get verified
- Provide personal details.
- Provide employment details.
- Provide bank statements.
- Provide proof of income.
- Provide social media accounts.
Step 3: Apply for a loan
- Specify what currency you want to borrow.
- Specify how much you want to borrow.
- Specify how long you want to borrow.
Step 2 is where it varies from platform to platform. Depending on the platform, you may be required to provide additional information. Some platforms use the information you provide to determine the interest rate. It is important to note that above-mentioned steps only apply to platforms that lend you cryptocurrency without needing collateral. Although, platforms that need collateral have similar requirements.
These are the best platforms to obtain a cryptocurrency loan or lend your cryptocurrency:
BitBond is a platform where you can borrow or lend cryptocurrencies or fiat. Therefore, it is tailored to investors looking to make additional income on their crypto/fiat holdings and borrowers looking to obtain a loan.
It is a peer-to-peer lending platform that accepts customers from all over the world. The investor is able to browse through loan requesters and check their credit details. This information is provided to the investor by BitBond. Once an investor agrees to fund a loan, the contract is executed by BitBond.
BitBond boasts its approval process takes only 24-hours and they provide instant funding. However, their application process is quite simple. You have to complete an online application connecting your business accounts. Once your application is approved, Bitbond will get back to you with a tailored offer.
If you are an investor, you can invest EURO, Bitcoin, EThereum, or Stellar on Bitbond STO. You can earn 4% interest plus high-profit participation. You are required to go through the KYC process first.
You can borrow a loan from 0.01 BTC to 500BTC. Although, you are required to go through their mandatory verification process. When you become fully verified, you are given reputation points. Reputations points determine your credit rating, When you successfully payback loans, you are given more reputation points.
BTCPop can offer you a loan even if you do not have collateral. Although, the fee could be higher for such loans. The fees are as follows:
No Collateral: 4%
Collateral verified: 2%
Collateral unverified: 3%
They also charge a listing fee of 1%. These fees are constantly changing, so you can check the full fee structure here.
For investors, you can earn interest by investing in personal loans or business loans. Additionally, you can create bonds and vouchers. Check out BTCpop here.
Pros and Cons of Cryptocurrency Loans:
In some ways, cryptocurrency loans are advantageous to the lender and borrower, than ordinary loans. But, cryptocurrency loans aren’t without its flaws. Here are the pros and cons of cryptocurrency loans;
Pros for Lenders:
- You can earn more by lending, rather than just HODLING.
- Diversity – You can lend to several borrowers, rather than just lending to one borrower, risking all.
Pros for Borrower:
- Quick and easy access to funds.
- No credit checks.
- Variety of offers to choose from.
Cons for Lenders:
- Cryptocurrency volatility – If you lend your cryptocurrency, there is a chance that you missing out on a cryptocurrency spike.
Cons for Borrowers:
- Cryptocurrency loans are largely unregulated.
- Cryptocurrency volatility – If the value of the cryptocurrency you offered as collateral decreases, you may be required to provide additional collateral to maintain the loan-to-value ratio.
If you are struggling to get an ordinary loan, you can opt into a cryptocurrency loan easily. Or, if you want to earn additional income on your crypto holdings, you can signup to one of these platforms. It is important to understand that cryptocurrency loans remain largely unregulated. Before you signup, consider the pros and cons and make an informed decision.