Since bitcoin’s humble beginning over a decade ago, it has evolved into a flourishing ecosystem. To a great extent, the world perceives it as a store of value. But it also fits the definition of an asset. And like any other asset, you can use it to secure a loan.
Getting a bitcoin loan is more or less like getting a loan in US dollars or any other fiat currency. However, it comes with a number of outstanding benefits as well as risks.
In this guide, you will find out everything you need to know about bitcoin loans. Using this information, you can determine whether or not they are suitable for you. But first things first, what are bitcoin loans?
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What are bitcoin loans?
In the simplest terms, bitcoin loans refer to loans that one can access using the digital asset as collateral. Within the bitcoin ecosystem, one of the most popular investment strategies is fondly referred to as HODLing. It basically entails holding on to your bitcoin regardless of price.
The word which started out as a misspelling of “HOLDing” rapidly caught on in the community. With time, it became an acronym for Hold on for Dear Life, which is appropriate given the asset’s volatility.
As a result of the prevalence of the strategy, lots of bitcoin community members have large bitcoin holdings. And bitcoin loan no collateral is a way to put these holdings to good use.
Instead of having to sell their holdings when in need of funds, HODLers can instead put them up as collateral and access financing.
Some platforms also allow investors to invest in loans using their bitcoins in a peer-to-peer lending system. Notably, lending platforms accept a wide range of major cryptocurrencies, not just bitcoin.
However, due to the volatility of the coins, most providers will only offer low loan-to-value (LTV) loans. In some cases, the maximum is 50% LTV. This means you will need to provide crypto assets worth double the loan amount. You will, therefore, require sufficient collateral if you are to get loan approval.
How to get a bitcoin loan?
In some ways, a bitcoin loan no credit check works in the same way as a traditional bank loan. But there are noteworthy differences. Just like you would do for a bank loan, you will need to make an application and provide the collateral. The bank, in turn, reviews the application and if it approves your request, you get the funds.
However, a major difference between the two is that bitcoin loans do not require credit checks or extensive KYC. As such, it is pretty easy to get the loan.
To begin with, you will need to identify the platform you will borrow through as there are many scams. Ensure you do your due diligence before starting the process as many bitcoin loan providers have scammed people out of their hard-earned money before. BitConnect and Lendconnect are prime examples of this.
Apart from lender authenticity, you would also need to consider the amount you need to borrow. Loan sizes differ significantly from one lender to the next. Another important consideration is the loan to value ratio and interest.
Once you assess these important aspects, you may proceed to the application stage. If a lender approves your loan, you will likely need to provide the collateral before disbursement. Some platforms may also require complete identity verification.
What are the pros and cons of a bitcoin loan?
- No credit Checks – Crypto loans typically require digital collateral. This means that all manner of borrowers, even bad creditors who cannot access loans from financial institutions can be able to obtain loans. Bitcoin lenders assess your creditworthiness by looking into other factors other than your credit score.
- Fast – The loan approval speed is usually higher than in traditional loans. Although this may vary between lenders, it is mostly a faster alternative than going through a traditional lender.
- Opportunity to get passive income – Bitcoin hodlers can earn extra income by lending their crypto to borrowers as they wait for the markets to be favorable.
- Better rates – Borrowers can find favorable loan terms such as lower interest rates in comparison to traditional loans
- Volatility – Bitcoin is infamous for its volatility. For example, after the announcement of the Facebook digital coin Libra, it climbed almost 55% in a week to reach an 18-month price high. A few weeks later, it dropped over 10% after calls for Libra scrutiny from politicians and regulators.
- Lack of regulation – Bitcoin is not regulated in all jurisdictions. When dealing with borrowers or in countries where it is not regulated, it is difficult to receive any support in case things go wrong.
- If you lend your crypto for the long term, you may be unable to take advantage of price spikes.
- Scams – There have been many cases of scams in the past. Beware of too good to be true deals.
Best Bitcoin Lending Platforms 2020
Here is our list of 5 best bitcoin loans platforms you can use in 2020 and their pros and cons.
Best Bitcoin Loans 2020 Verdict
Given its obvious advantages, the bitcoin loan no credit check is here to stay. It offers a great way for investors to earn passive income and for borrowers to access much-needed funding without selling their assets.
However, the most important aspect to consider before settling on a lender is their legitimacy. In view of the prevalence of scamming in the cryptocurrency industry, due diligence is critical.
Take time to assess your potential lender, going through user reviews so as to avoid falling victim to scams.
Will I need to provide collateral?
This depends on the lender you choose. Most lenders will require you to put up crypto collateral that they can easily resell online in case you default. Others work on a trust basis to offer bitcoin loan no collateral.
Am I eligible for a bitcoin loan?
Different platforms have different eligibility criteria. Generally, you must be over the age of 18 and have the required collateral. Others will require you to have a steady job, be in a jurisdiction where bitcoin is regulated or just have a high trust score.
Will I need a good credit score to obtain a bitcoin loan?
Most bitcoin lending platforms don’t require you to have a good credit score as they require collateral. They use alternative methods to determine your creditworthiness, such as trust scores based on the information you provide and their ability to verify it.
Where can I get a bitcoin loan?
You can get a bitcoin loan from peer-to-peer crypto lending platforms or bitcoin lending platforms. Depending on your choice, you may deal directly with individual lenders or lending companies.
Can I get a bitcoin loan while staying anonymous?
Yes, it is possible on some forums to get a loan without revealing your identity. However, it will most likely be harder and at higher rates
What if I miss my bitcoin loan payments?
Different platforms deal with this issue differently. Some will reduce your trust score and/or charge late fees while others offer grace periods. Most of the time you will have the option to make partial payments. Ensure you read and understand the terms and conditions of your loan to avoid being surprised later.
Who owns the crypto collateral?
In most cases, you own the crypto assets and you regain access after fully paying the loan. Therefore, appreciation or depreciation of the assets is on you.
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