Do you have extra bitcoin assets and no idea what to do with them? Here’s a guide to take you through the bitcoin loan essentials. In this article, you will gain useful information about bitcoin loans, the reason for taking bitcoin loans, how they differ from traditional bank loans, what are their withdrawal limits, and much more.
Bitcoin and cryptocurrency have gained popularity after being launched in 2009. Lenders and borrowers often prefer this method over traditional loans (more on this later in the article!)
Bitcoin is a type of cryptocurrency or if simply put, digital currency stored in the form of computer codes. They have no relation with traditional bank’s money. However, you can take out loans against your owned bitcoin collateral.
In the case of a bitcoin loan, the borrowers offer the bitcoin as collateral and gain cash with an interest rate from the lender. The bitcoin can be leveraged by borrowing cash against them. Investors or lenders are often ready to lend great amounts of cash with a rather low rate of interest.
You have to pay interest rates on any type of loan; there are no free bitcoin loans available in the trade. Therefore, the rate of interest set by the lender, based on the loan amount and loan to value, is required to be paid periodically along with the initial loan amount.
Instead of diving headfirst into the world of bitcoin investment, you can test the waters by taking a loan for 7 days at a very low rate of interest. This will give you an idea of how things are carried out and what is the worth of your crypto assets in the market.
About Unocoin
Unocoin is the leading crypto exchange in India, also offering financial services. You can set yourself up as a borrower in a few simple steps and start trading. They provide the service with the highest security that ensures the safety of sensitive data.
To gain a better understanding of bitcoin loans, let’s see how it works.
How does a bitcoin loan work?
Bitcoin loans are pretty simple to understand and invest in. If you have a sufficient amount of bitcoin, you can easily get a loan by offering them up as collateral or crypto deposits.
The process of a bitcoin loan can be carried out in a few simple steps.
1. Set up a borrower account
To start bitcoin trading, you first need to register a borrower account with an established bitcoin trading company. Sign up as a crypto borrower and determine what amount of USD or any other fiat currency you need.
2. Submit the relevant documentation
After determining the required amount, connect to a crypto lender to obtain a loan against your collateral. Submit the required amount with the essential documents like address proof, identity proof, and so on for the KYC/AML process. With bitcoin loans, you do not have to specify the reason for borrowing.
3. Get loan terms from your lender
Once you have submitted the loan application with the required amount and the documentation, the crypto lender reviews your application. If the application is accepted, then the crypto lender will send the loan terms to you within hours.
4. Send the crypto collateral
Once the lender has sent you the loan terms, it is your responsibility to review and accept them. Once you agree upon the loan terms, send the crypto collateral or the bitcoin offered as collateral to the lender’s custodian as a deposit.
This brings you to the next step, which is receiving the required amount in the agreed currency
5. Receive the loan
After sending the crypto collaterals, the crypto lender receives them and wires the loan, in the agreed-upon currency, directly to the borrower’s bank account. You are then required to pay the rate of interest periodically. This completes the process of getting a bitcoin loan.
A person can also get registered as a crypto lender. If you are interested in lending money against bitcoin collaterals, then there are many websites where you can get registered, set up a lender account, and choose between individual borrowers that you want to lend money to. This involves a careful screening process. You need to analyze the trust score of the borrower before lending them money.
The lender can also choose the amount of money that he or she wants to lend. The lender can also lend money according to the interest rates. You can set higher interest rates based on the loan amount and the total value of the collateral.
There are many flourishing companies in the market that act as a middle agent between the borrower and the lender. The lender and borrower apply and send applications. Whichever lender and borrower requirements match, they can set up a deal.
Reasons to take a bitcoin loan
Several reasons support the need to take a bitcoin loan. Other than a financial requirement, many aspects make bitcoin loans worthwhile for every user.
- Cash liquidity
Bitcoin loans offer instant cash liquidity. Investors in need of emergency cash for business transactions, or a medical requirement, might find bitcoin loans appealing. It is a great opportunity to leverage your cryptocurrency digital assets and attain some extra cash in return. With a small percentage of interest rate, it makes more sense for the investors who are reluctant to sell their bitcoin.
- Money-saving deal
Taking bitcoin loans can save a lot of money than you think. Especially in the tax season, many bitcoin lenders have the benefit of saving tax liabilities. You can easily avoid exchange fees and tax implications which have a positive impact on your crypto investment strategies.
On the other hand, in the case of borrowers, the cost of borrowing is effectively reduced when using online platforms like BlockFi, to take bitcoin loans. It is a much cheaper option than selling your bitcoin assets. Calculate the benefits and rate of interest before taking the loan to reduce a huge amount of exchange cost.
- Quick approval
Bitcoin loans are very different from traditional loan methods. The loan application of the borrower is quickly approved as the credibility of the borrower is not judged based on the credit score of the borrower. Even people with lower creditworthiness that cannot get loans from other financial institutions can apply for bitcoin loans and get approved by the crypto lenders.
The bitcoin loans work on trust scores instead of credit scores. If the borrower’s trust score is high, then he or she can expect quick approval from the lender. In some platfroms, keep in mind that you can always increase your trust score by providing all the necessary documentation. Also, the trust score can be increased with the help of social media accounts. The more social media presence you have, the more real person you are.
- Reduced borrower’s risk
Crypto-backed loans reduce the chance of losing credit score, decreasing borrower’s risk. With crypto loans, borrowers get quick and timely repayments, no delay in paperwork, and there is no requirement to prove the ability to pay back the loan.
As the banks are not involved in crypto loans, the borrowers can be tension-free from the chance of getting their user accounts closed. If you are not able to pay back the loan on time, it will not affect your credit score or your financial capability. However, it is advisable to take loans that you can repay timely. Otherwise, it can affect your trust score, and the chance of getting a loan in the future might decrease.
Easy extra income
The crypto lenders investing in bitcoin loans can access easy extra income whenever required. With a periodic interest charged from borrowers, you get steady income regularly. In favourable market conditions, you can lend your cryptocurrency to borrowers for an extra source of income.
Borrowers, too, can pick up quick cash in case of emergencies. The traditional loan methods take up a lot of time and money, while bitcoin-backed loans can help in completing the process quickly.
- No loss of crypto ownership
With crypto loans, you can meet your immediate cash needs without losing ownership of your cryptocurrency digital assets. If you want to hold on to your crypto assets but also need immediate cash, then bitcoin loans are the best way to do that. Bitcoin loan requires you to offer your bitcoin as collateral or deposits to the lender to earn money against them.
- Lower interest rates
Unlike traditional loans, the lending rate of interest in the case of bitcoin loans is highly appealing. In the case of traditional bank loans, the interest rates are set by the bank or the government. However, in the case of bitcoin loans, borrowers can get lower rates of interest for a long-term loan. It gets even better when the lending loan terms are in favour of the borrower.
How bitcoin loans differ from traditional bank loans?
Traditional banks have been serving us for a long time, but they aren’t quite as evolved as digital trade. Bitcoin loans have leveraged the potential of financial trade to a new level.
- Fast and easy processing
Traditional bank loans take forever to come through. All the work is still paper-intensive, which makes this type of loan time-consuming and costly. There is always a potential delay in the paperwork, and often people have to face the consequences due to some error in the paperwork.
In comparison, crypto loans are much more speedy and easier to go through. The bitcoin loans are digitized, and there is no paperwork required. Usually the process of taking a bitcoin loan takes a few minutes to a maximum of 2–3 business days. It is the easiest way to borrow funds in the case of an emergency.
Crypto loans also offer the facility of switching between assets. This is something that is not allowed in traditional bank loans.
- Collateral liquidity
Bitcoin loan collateral is highly liquidated when it comes to taking crypto loans. Lenders can easily melt their crypto collaterals in case there is a sudden dip in the crypto asset prices. This helps in reducing losses. Crypto lending platforms require the borrowers to at least collateralize 100% of the value they own. They need a high loan-to-collateral ratio.
However, the bank collaterals are not that liquid, and it takes time to take loans and borrow money against them.
- Flexible loan terms
Crypto loans or bitcoin loans are far more flexible than traditional bank loans.
Traditional banks have their own set of loan terms, interest rates, loan amount, and loan period, which makes the process harder for the borrower, as they have no choice left. The loan terms of traditional banks are rigid in every way. Even if you have the option of choosing among several banks, the loan terms are more or less the same in every financial institution.
However, in the case of bitcoin loans, the process is very flexible. The loan terms are always in favour of the borrower. The borrower has full control over the loan period, loan amount, choice of currency or stablecoins, and the loan-to-value ratio. Although the loan amount depends upon the total value of the bitcoin loan collateral, crypto lending is way more flexible.
- Accessibility
Crypto loans are easier to access than traditional bank loans.
Traditional bank loans are given based on your credit score. If your credit score isn’t up to the mark, then you will most probably be denied taking loans. To take a loan from financial institutions, you are required to prove that you are worthy of taking loans and paying them back.
In comparison, there is no such requirement in the case of crypto lending. The creditworthiness of the borrower is measured in different aspects. Bitcoin loans are based on trust scores. If your trust score is high, then you are more likely to receive the loan. You don’t require a bank account for transacting bitcoin. All you need is a lender or borrower account with a reputable company, and you are good to go.
- The difference in loan currency
The borrowers that take out loans from financial institutions get the loan amount in their local currency. There is no option of choosing fiat currency. Whereas in bitcoin loans, there is a currency choice. The borrower is given the loan amount in crypto. Some websites offer the option of choosing the fiat currency in which they want to get paid, like USD, CHF, GBP, EUR, and so on.
- Loan repayment
Traditional banks ensure that the borrower is capable of paying back the loan. Therefore, the lenders are secure in the case of bank loans. While in the case of bitcoin loans, there is no loan repayment security. The creditworthiness of the borrower is measured based on their trust score and not credit score, which puts the lender in a position of risk.
- Loan size
Traditional bank loans are preferred when the borrower requires a sustainable sum of money for purposes like buying a house, getting a car, and so on. The size of the loan amount granted is much larger as compared to bitcoin loans.
Whereas in the crypto loan trade, the loan amount size is comparatively smaller. You can get funds for purposes like investing in a business, paying off debts, or a medical emergency. Bitcoin loans are still in the initial financial stage.
Why take a bitcoin-backed loan with platforms like BlockFi?
BlockFi is the leading crypto trading company with outstanding services so far. For crypto-backed loans, it is the best website with amazing interest rates and an easy account setup.
A list of reasons to take a bitcoin-backed loan with BlockFi are:
- Borrowing rates up to 4.5% APR: With a BlockFi bitcoin loan, you can get as lower interest rates as 4.5% APR without any initial expenditure. All you need to do is set up an account.
- Fast fund transfer: BlockFi guarantees same-day fund transfer. You get quick funds for your crypto.
- No payment penalties: With BlockFi bitcoin loans, you can borrow without any penalties. Pay as early or as late as you want without worrying about prepayment penalties.
- Investment options: BlockFi provides investment options. You can invest in various other assets with your crypto funds.
- Worthwhile loan options: BlockFi offers up to 50% of the value of your crypto asset.
- Full transparency: BlockFi ensures full transparency. You are in complete control of your account and data.
- Data security: BlockFi also ensures complete data security so that your sensitive information is not compromised.
How does BlockFi work?
BlockFi features a simple step-by-step process to register and apply for bitcoin loans.
Step 1: Applying for a loan
Firstly you are required to register yourself on the BlockFi loan account. It takes less than 2 minutes, and no membership or token is required before applying.
- Choose what type of crypto asset you want to put as collateral and what amount of money do you require for a loan.
- Provide your email address and verify your account.
- Fill in your personal information such as Name, DOB, address, source of crypto being used as collateral, bank’s information, and reason for taking the loan.
BlockFi in no way affects your credit score.
Step 2: Ap
plication review
After you’ve registered and applied for a loan application, the BlockFi team reviews your application in one business day. When your application is approved, the team will send you a calculated loan offer with all the essential information, displaying how your loan offer was calculated.
Step 3: Reviewing loan offer
Once the BlockFi team sends you the loan offer, the next step is your job. You need to review the information provided in the loan offer.
The loan offer contains the following information:
- The interest rate will depend upon your requested loan amount and your location.
- The origination fee, which is usually up to 1–2%
- The offer APR, which is the total yearly amount
- The amount of crypto collateral that needs to be put on stake to receive the loan, which is based on your loan to value(LTV).
Step 4: Accepting the loan offer
Once the loan terms are reviewed, the next step is to accept the loan offer and send your collateral to BlockFi’s custodian, for which you will receive the loan amount. You can then use this loan amount however you like, maybe invest in other assets, use it for business operations, paying off debt, and so on.
What are the withdrawal limits of BlockFi?
BlockFi has no restrictions on withdrawal time. You can withdraw any time you want. Currently, BlockFi is offering one free crypto withdrawal and one free stable coin withdrawal per month. Keep in mind that they do not offer free bitcoin loans.
After a few simple steps, your withdrawal will be processed within 24 hours.
How to take bitcoin loans from Unchained Capital?
Unchained Capital is the leading bitcoin native financial services provider in the United States. They aim to ensure that everyone can secure and maximize the value of their bitcoin assets. Unchained Capital ensures full transparency, easy-to-use standard protocols, and timely delivery to boost client satisfaction. They have a bitcoin loan process that is easy to apply to and provides funds within 1–2 business days.
Different types of services that Unchained Capital offers:
- Personal: Unchained Capital provides short-term low-interest-rate loans for personal use.
- Commercial: Unchained Capital allows business bitcoin loans for operational purposes.
- International loans: They even provide loans to international clients; although they are currently confined to states outside of the US, they are surely expanding their services.
- IOWA loans: Loans for non-commercial companies and individuals in IOWA are also available on unchained capital.
The step-by-step process of taking a bitcoin loan from unchained capital:
Step 1: Set up a borrower’s account with the Unchained Capital website.
Step 2: Choose the onboarding package with the services that you want to adhere to.
Step 3: Fill in all the personal and financial information like name, address, loan amount, bitcoin collateral, and so on.
Step 4: Receive the loan agreement sent by Unchained Capital after reviewing your application.
Step 5: Once you agree upon the loan terms, they send you the address where the bitcoin loan collateral is to be deposited.
Step 6: You send your bitcoin to the address provided to receive the loan.
Step 7: After receiving your bitcoin on the collateral deposit address, their team will send you the USD currency directly in your specified bank account.
The interest payments are supposed to be due every month until the loan matures.
Bitcoin loans have been providing loads of funds to the people who need it and have bitcoin assets for some time now. Still, there are many fraudulent activities that you need to look out for. Such as a company that promises you to grant bitcoin loans without deposit or any verification, then be sure that is a scam. No legitimate company offers bitcoin loans without a deposit; knowing this can save you from trusting the wrong lender.
However, some companies allow you to take bitcoin loans by keeping your crypto coins as collateral. That said, you need proper verification to go ahead with the procedure of applying for a bitcoin loan. Bitcoin loans are safe if you keep an eye out for frauds and scams.
FAQ’s
1. Is BlockFi insured?
BlockFi is not insured by FDIC or SIPC. However, they take all the possible measures to protect your funds. Your money is as safe with BlockFi as with a traditional bank. The funds are stored in cold storage that is unhackable and completely safe. Their custodian is regulated by the New York State Department of Financial Services (NYSDFS) and a licensed depository trust. They make no such promise as a bitcoin loan, no deposit.
2. What is BlockFi’s withdrawal limit?
BlockFi does not apply any restrictions on fund withdrawals. The borrower can easily withdraw funds at any given time. BlockFi also offers one free crypto withdrawal and one free stablecoin withdrawal once per month. Beyond that, however, you are required to pay the fees for withdrawing funds.
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- YouTube Channel: https://www.youtube.com/c/Unocoin/videos
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- E-mail id: [email protected]
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Disclaimer:
Crypto products are unregulated as of this date in India. They could be highly volatile. At Unocoin, we understand that there is a need to protect consumer interests as this form of trading and investment has risks that consumers may not be aware of. To ensure that consumers who deal in crypto products are not misled, they are advised to DYOR (Do Your Own Research).
