What is Cryptocurrency Loan?
Crypto loan is a type of loan where the borrower pledges
cryptocurrency asset as collateral to secure cash loan. The borrower offers his
crypto asset to the lender in exchange for cash, to pay back on installments.
Failure to pay back the loan, leads to forfeiture of crypto asset used as
collateral and the lender takes over or cash out the crptocurrency. In some
cases, no collateral is required to access crypto loans.
How Crypto Loan Works
Crypto lending is available on
two platforms: the centralized platform, and decentralized platform. In the
centralized platform, the users borrow fiat currency (e.g., USD) using their crypto
coins as collateral. The collateral must amount to at last 50% of the borrowed
sum, which is known 50% LTV. The collateral is released after the debt is
repaid by the due date, otherwise, it is liquidated. Interest rates are usually
low and vary — for example, you may pay 4.5% plus the origination fee. As a
lender, you earn interest by depositing your coins into the lending platform.
On decentralized platforms, the
process is based on smart contracts, and the distribution of loans and repayments
is automated, and no collateral and KYC data collection are required on
decentralized platforms, which make the processing faster with lower transaction
fees unlike on centralized platform.
Advantages of Crypto Loans
- Easily Accessible
- Low interest rates,
- Low processing fees,
- No need for a bank account,
- Diversified loan portfolio,
- No geographic limitations.
Disadvantages of Crypto Loans
- No loan security
- Volatility
Conclusion
Crypto lending is swiftly permeating the financial lending market, and it is greatly changing the financial lending landscape despite being relatively new. Its easy accessibility gives easy access to loan and grants financial freedom to many globally. You can access crypto loan from anywhere, no location barriers.