How And Where To Get A Bitcoin Backed Loan

Getting a Loan against a Bitcoin CollateralSince Bitcoin has become a serious asset, even traded by the big ones on Wall Street, there are more and more areas in which Bitcoin plays a role. The cryptocurrency can be used as an actual means of payment, but it plays a subordinate role in this area due to its volatility, except when it comes to anonymous payments.

A far more important role plays the world’s first open-blockchain based cryptocurrency as a commodity or investment. For traders, volatility is a dream. For long-term investors, however, it’s about the conviction that Bitcoin will gain value massively over the years.

Therefore many Bitcoin enthusiasts rely on simply keeping their Bitcoin on a long-term basis. Those are the so-called HODLers.

Who benefits from a Bitcoin secured Loan

It is exactly for these HODLers that Bitcoin Loans are a great way to get cash with the help of their cryptocurrencies, without actually having to sell their cryptos.

This is especially useful and worth a mint if you need money at the moment but want to be able to hold your BTC. What people do with such a loan against Bitcoin is paying a back tax, investing in their business or buying a property. The sticking point with a Bitcoin backed Loan is of course that you have to pay back the money at the end of the term. Then you must have the money that you’ve borrowed today. But that is the case with every credit, that it has to be payed back.

The good thing about Bitcoin Loans is that you can keep your Bitcoin (apart from the period when it is kept with the loan custody service during the loan term).

Companies lending Cash against Bitcoin

The following companies currently offer Loans against Bitcoin comfortably through their websites:

Company
Min. Loan:
Loan-To-Value
Interest from (annual)
Countries
BlockFi
Min. Loan:

$10,000

Loan-To-Value

50%

Interest (annual)

4.5%

Countries:

worldwide
YouHodler.com
Min. Loan:

$100

Loan-To-Value

85%

Interest (annual)

3%

Countries:

worldwide
CoinLoan.io
Min. Loan:

$100 (€ etc.)

Loan-To-Value

60%

Interest (annual)

5%

Countries:

worldwide
Nexo.io
Min. Loan:

$500

Loan-To-Value

50%

Interest (annual)

8%

Countries:

worldwide
HodlFinance.io
Min. Loan:

$50

Loan-To-Value

50%

Interest (annual)

12%

Countries:

worldwide
Unchained Capital
Min Loan:

$10,000

Loan-To-Value

50%

Interest (annual)

8.5%

Countries:

USA
Nebeus
Min. Loan:

€250

Loan-To-Value

72%

Interest (annual)

6.12%

Countries:

worldwide

Cryptopay.me is another fintech company planning to lend cash for bitcoin in the near future. We’ll add them to the list as soon as their offer is launched.

How does a Bitcoin backed Loan work

Getting a Bitcoin Loan online is fairly easy – just as services booked over the Internet should be these days.

1. Register with a Loan Provider

A Bitcoin Loan Provider is a company that provides financial services related to the normal Fiat Money System. Therefore such companies are obliged to follow a KYC policy and to know the real name, address and ID documents of their customers. Therefore, first of all you have to fill in your account profile completely and verify your ID. Only then applications for their financial services are possible.

2. Fill in a Loan Application Form

This is simply a form from the provider on the website asking for certain information. This includes, for example, the amount of cash you want to get and the period.

It is important to note that each company has a certain minimum loan amount. For private borrowers, the minimum amount is always significantly lower than for companies.

Requirements

Most Bitcoin credit providers lend worldwide, with few restrictions. Countries that cannot be serviced are included in their Terms of Service if there are restrictions. We have already listed the most important country restrictions in our comparison table above. Unchained Capital is the only provider offering private loans only in the US, and not even in all states. You can find out which States are excluded on their website.

Apart from that you have to be over 18 years old in order to qualify for getting cash for your BTC collateral.

No Credit Check

The good thing about Bitcoin Loans is that lending companies usually don’t care about a customer’s credit history. This is probably due to the security the companies receive through the Bitcoin deposit. The possibility that the borrower cannot repay the loan is thus excluded. So all you need to do is do a normal ID-verification, just like you do on Bitcoin exchanges.

Can a Crypto Loan affect your Credit Score?

Another advantage of a Bitcoin loan is that it won’t affect your credit score. You can even use it to repay other credit debts to improve your Credit Score. In contrast to normal loans, it can almost never happen here that the lender does not get his money back. Because if you can’t pay back, the lender simply keeps your Bitcoin and sells it. This security does not harm him and does not affect your credit score.

How long does it take till you know if you get the Loan after Application?

Bitcoin lenders are very quick with the evaluation of loan applications. As a rule, you will receive an answer within a few hours. So you don’t have to wait days to find out whether the deal will be made or not. And usually the latter should be the case.

What will be determined in the Loan Terms

The details are specified in the credit agreement just as usual. Who borrows how much from whom, how long is the term, how high are the monthly interest rates, when and in what form are the interest paid. Extra fees (e.g. there is usually a fee of a few percent on the total amount, in addition to the accruing interest) and the loan-to-value ratio, which must be maintained.

Loan-to-Value Ratio

The Loan-To-Value ratio is the ratio of the current Bitcoin value (Value) to the amount of credit that is paid out. Due to the volatility of Bitcoin, a loan-to-value ratio of no more than 1:2 is common. This means that you have to deposit twice the value of what you get paid to BTC. Due to the fact that the Bitcoin rate can very easily collapse in a very short time, this is understandable and reasonable on the part of the lenders.

The Storage of Clients Funds

With Bitcoin backed loans, it is common for the coins to be kept with a custody service that is independent of the lending company. This ensures that you would get your BTC back even if the credit company went bankrupt. It also ensures that the credit company will not touch the deposited BTC, except in the case of a legal liquidation if the customer does not repay his loan or does not respond to a margin call in the event of a price collapse.

Margin Call (when BTC Price crashes)

If the Bitcoin price falls too high, the loan-to-value ratio will be disturbed and at a level that is too risky for the credit company. The customer is then contacted and asked to restore the ratio by either depositing more BTC or repaying part of the loan. This is the same as with trading, where there is also the known margin call.

What happens if BTC price dramatically rises during the Loan Term?

Of course, there is not only the case that the Bitcoin price can collapse, but also the opposite: the price can rise dramatically. If this is the case, it may also be possible to balance the loan-to-value ratio in one’s own favor. In this case, you can contact the lender and agree, for example, that you already get back part of the deposited BTC. In this way you may be able to benefit from a Bitcoin Loan especially during a bull market.

However, certain conditions may have to be fulfilled here, such as a certain period of time might have to have elapsed since the beginning of the loan. Also the partial refund of the deposited BTC is certainly only possible if BTC price has increased by a certain percentage.

What happens if I can’t pay the loan back on Time

If you are unable to repay the loan at the end of the term, you can apply for an extension of the term. It is up to the credit company to decide whether such an extension of the term is possible or not. Otherwise, the deposited collateral will be liquidated. The credit company would sell the Bitcoin to get its money back.

Crypto loan Interest Rates compared to traditional Loans

Interest rates of Bitcoin backed loans are by no means higher than others, as we have found out. The interest rates on normal unsecured loans start at 5% and go up to a full 36%, depending on the provider and contract. Here’s a website where you can compare personal loan rates in the US.

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