This guide looks at how to borrow against crypto through collateralized loans. How do you repay a crypto loan? What happens if the market plunges? Find out everything you need to know in this step-by-step guide. Here’s how to get a crypto loan in 2024.
KEY TAKEAWAYS
• Crypto loans use your digital currency as collateral instead of physical assets (as is the case with traditional bank loans).
• Getting a crypto loan is straightforward and often will not require a credit check. However, it’s a high risk activity, and should be considered with caution.
• YouHodler is a popular crypto loan platform; users can borrow up to 90% of their crypto’s value.
How to get a crypto loan
Before we dig into the details, here’s a quick summary of the steps required to take out a crypto loan.
- Sign up to a crypto loan platform (YouHodler in this case).
- Fund your account.
- Apply for the loan. Use the platform’s loan calculator to determine your borrowing and repayment terms.
- Check the details and confirm. You can now withdraw your loan.
- Manage your payment and ensure you repay within the specified time limit.
- Repay in full to get your original crypto back.
Now let’s take a closer looks at each step. We will use YouHodler as an example platform to demonstrate the process. You may use any of the lending platforms available today but always do your own research before choosing your preferred lender.
Step 1. Sign up to YouHodler
Here are some key reasons why YouHodler is such a popular lending platform:
• It accepts over 40 different types of cryptocurrencies as collateral for your loan.
• You can borrow up to 90% of your crypto’s value for up to one year.
• You can receive your loan in several currencies like the euro, U.S. dollar, Swiss franc, British pound, or even in stablecoins.
• You have up to one year to repay the loan, giving you some flexibility.
• The lender approves and funds loans instantly, so the whole process is fast and easy.
• YouHodler doesn’t perform credit checks, making it easier for people with all types of credit histories to get a loan.
Step 2. Transfer your crypto to YouHodler
First, you need to transfer your crypto to your YouHodler wallet. YouHodler accepts over 50 different types of cryptocurrencies and does not charge fees for depositing or withdrawing crypto.
Step 3. Apply for a crypto loan
Go to “Loans” (left-hand side menu) and then click on “Create a new loan.”
Next, use the crypto loan calculator on their website to decide how much you want to borrow. Your loan will be approved instantly — there’s no need to find a lender like on other platforms. You’ll receive your loan in currencies like EUR, USD, CHF, GBP, stablecoins, or even other popular cryptos.
Think of this step as selling your cryptocurrency to YouHodler temporarily. After a certain time, you’ll buy it back.
In this example, you can see the crypto loan offered by YouHodler. The collateral offered is 9863 GALA, and the platform allows us to borrow 217 USDT.
The minimum amount to borrow is 100 USDT.
You may select the crypto or fiat currency for your loan – USDT stablecoin, Swiss franc (CHF), Euro (EUR), British Pound (GBP), or U.S. dollar (USD).
We have selected 90% LTV, which implies a daily fee of 0.0274% per day, which in this example adds up to 0.06 USDT for our 217.05 USDT crypto loan.
Note that the daily fee increases when selecting 70% or even 50% LTV.
Another feature of crypto loans on YouHodler is the “Take Profit” option. You can choose to allow YouHodler to sell you collateral if the digital asset reaches a certain price. It’s similar to a limit order, and it allows traders to cash in on any future price increase, even during the time the crypto is used as collateral for the crypto loan.
Step 4. Withdraw your loan
Your loan is available in your balance in your YouHodler wallet. In this example, we opted for the USDT loan. On the asset’s page, we can see the history of that balance, including the loan and daily fee (interest).
From here, you can choose to withdraw or convert your crypto, just like you would with any other asset in your wallet.
You have two options to withdraw your money:
- Bank wire transfer via SEPA and SWIFT. This is available worldwide.
- Crypto withdrawal: you can buy any crypto or stablecoins using YouHodler’s integrated crypto exchange.
Step 5. Manage your payments
The loan fee is calculated every day from the moment you open the loan, and it’s charged from your wallet in the borrowed currency.
If your wallet doesn’t have enough funds to pay the daily fee, the system will add it to your repayment amount. You’re free to repay the loan at any time and get your collateral back. You only pay for the days your loan was active.
Step 6. Repay your loan and get your crypto back
You can repay your loan using your YouHodler wallet via AdvCash, bank wire, or even use part of your loan collateral to get your crypto back.
Step 7. Manage your loan
YouHodler has advanced features that allow you to manage your loan conditions and respond to market movements.
You can increase your loan-to-value ratio, extend the Price Down Limit, close the loan without repaying, or set a take-profit price. You can also use these features if you want to borrow Bitcoin.
What is a crypto loan?
A crypto loan is similar to a traditional loan from a bank. The big difference is that you use your digital currency as collateral instead of using your house or other physical asset.
Imagine it as a sort of pawn shop for your digital money. You offer up your crypto, and in return, you get a loan. The loan amount is usually less than the full value of your crypto — this is what we call the loan-to-value (LTV) ratio.
Different lenders will let you borrow different amounts. If you own BTC, ETH, or one of many other types of crypto, you can use those digital assets to secure a loan.
You might not get your loan in regular dollars or other fiat currency. Some lenders might give you a stablecoin instead, which is a type of digital currency intended to stay the same price as an asset it is pegged to — often the U.S. dollar. You can typically swap this for cash if you need to.
As for paying the loan back, this varies. For some, loans can be prepared over a few years. Interest rates are usually lower than what you’d see with regular personal loans or credit cards — often under 10%. And as long as you pay back the loan on time, you get your crypto back.
What are the risks of crypto loans?
There are several things to keep in mind when looking into crypto loans.
- First, you have smart contract risk. A smart contract is a digital agreement that manages the loan and collateral. This risk can be reduced if the DeFi lending platform has solid testing processes.
- Second, there’s the liquidity of the lending platform. This is about the percentage at which a loan is considered under-collateralized, leading to a margin call. Basically, it’s a safety cushion for borrowers.
- If you’re a lender, you need to consider the risk of impermanent loss. This happens when the value of the assets you lend falls below the price they were when you lent them, and the fees you earn from the loan don’t cover the drop in price.
- Another risk to be aware of is bad collateral listing, which can disturb the whole platform. If you’re not comfortable with these risks, you might prefer a platform that offers protections like insured custody and over-collateralization.
Remember, there have been cases of hacks in the DeFi and decentralized loan space. Also, the regulatory framework around cryptocurrency lending isn’t fully formed yet.
Whether you’re a borrower or a lender, be very careful when you’re dealing with crypto loans. Make sure you understand the risks and try to keep your funds secured in cold storage to avoid hackers.
Can I borrow crypto with no money?
In theory, you might come across an offer to get a crypto loan without any money or collateral. However, it’s important to be aware that such offers are likely scams.
Crypto lenders typically need collateral to protect themselves, so if a loan offer seems too good to be true, it probably is. The only way to borrow crypto with no money is by using flash loans.
Did you know? A flash loan is an uncollateralized loan that must be repaid before the transaction ends.
Legitimate crypto lenders might offer non-collateral loans, but these often have very high interest rates, smaller borrowing amounts, or shorter repayment periods.
These types of loans might not be suitable for traders who want to increase their position size with leveraged trades. They would need to make very profitable trades within a short period to cover the high interest rates. It’s advisable to avoid applying for non-collateral loans.
How do I pay back my crypto loan?
Paying back a crypto loan is simple. Firstly, you decide when you want to start repaying your loan. This could be anytime during the loan term. Typically, your payments will go towards both the principal amount of the loan and the interest that has accrued over time.
You can choose various methods to repay. For instance, with YouHodler, you can use funds in your YouHodler wallet, make a bank wire transfer, use AdvCash, or even part of your collateral.
It’s important to remember that if you don’t have enough funds in your wallet to cover the daily loan fee, the system will add this fee to your repayment amount. Once you have fully repaid the loan and any interest, you’ll get your crypto collateral back.
Are crypto loans worth it?
Whether a crypto loan is worth the risk depends on your personal situation and needs. Crypto loans can offer quick liquidity without selling your crypto, allowing you to maintain potential long-term gains.
Crypto loans can also be easier to get than traditional loans, with no credit checks. However, they come with risks, including collateral loss if crypto prices drop significantly. Always weigh these factors and conduct careful research before deciding. Consult a financial advisor if necessary.
Disclaimer: This article is for informational purposes only and should not be considered investment advice. Crypto is an exceptionally volatile asset class and crypto loans are a high risk product.
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