Reasons and Benefits of Cryptocurrency Backed Loans

Blockchain technology has been revolutionizing the customary financial ecosystem concerning payment transactions and investment behavior. The decentralized finance platforms are offering ten times more interest rates, which has caused a spurt in the cryptocurrency lending arena.

Crypto loans have gained plenty of attention in the past few years. Online, you can use cryptocurrency or BTC as repayment security and get a loan instantly. It gets funded in your bank account directly or in your wallet.

Reasons to opt for a cryptocurrency-backed loan

Investors can have a long term goal of their cryptocurrency investment. Even though they aim to hold their BTC for long, some situations force them to sell it for USD. Instead of selling they can use crypto as collateral to gain cryptocurrency-backed loan approval. It allows maintaining ownership of their crypto-asset as well as gaining access to necessary funds in fiat to manage their emergency needs.

Where to use the cryptocurrency-backed loan?

Cryptocurrency backed loans are a great way of efficiently and cost-effectively managing your BTC assets when you need dollars or cashflow. The crypto-backed loans can be employed in a variety of purposes like –

  • Buy home – The majority of lenders don’t approve a crypto payment.
  • Fund business development – Crypto can be used to gain accredit for business development.
  • Diversification – Diversifying lowers your portfolio risk.
  • Refinancing debt – Student loans or credit card arrears are high-cost debts that need to be paid off.
  • Pay travel expenses – Crypto can be used to plan a cool vacation.

The purpose list on how to use a crypto-backed loan is endless. Decentralized space is developing as investors are locking their BTC as collateral to get a loan, create liquidity, or mint new asset. The borrower will have to pay the lender every month as agreed and the moment amount is paid fully, the BTC held as collateral will be reimbursed.

Certain applicable conditions are – if the collateral’s price drops specifically [20% to 30%], the lenders send a request to the borrower for more capital.

Benefits of crypto lending

As blockchain technology is involved the offerings are faster, cheaper and extremely transparent to both the lenders and the borrowers. Blockchain-powered transactions are irrefutable and instant as well as there are no transaction fees involved. Therefore, leveraging the blockchain technology offers benefits like –

Negligible transaction fees

In a peer-to-peer lending process the financial institution or bank charges fees for processing a loan application. Processing fees are significant. Alternatively, cryptocurrency backed loan don’t ask for processing fees.

No paperwork

For crypto-to-cash loans, there is a need to provide bank account details otherwise there is no other paperwork involved. Individuals residing on the pyramids lower level, who have no KYC documents or are unbanked can be targeted.

No geopolitical borders

In P2P lending there are geographical restrictions but in crypto lending opportunity to lend across the borders are made easily accessible. Interested investors can diversify their portfolio across different countries and states. Lenders leverage cross-country diversification, while borrowers gain global lenders pool. A win-win situation for both!

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