Cryptocurrencies have been skyrocketing over the years, and people are taking advantage of them. You can now apply for crypto backed loans where you get to borrow money, and your crypto will serve as collateral. Currently, many lenders provide this type of loan, and you can get approved in just a few minutes. Since cryptocurrencies are considered assets, it will be easier for you to achieve funding with the use of crypto. It’s like borrowing money with your house or car as collateral. But what are other things you need to know? Find out here
The Two Types of Crypto Loans
There are two types of crypto loans. The first one is called Centralized Finance or CeFi. These are custodial crypto loans where the lender has control over your crypto during the repayment term. Most crypto loans today fall under the CeFi umbrella. On the other hand, there’s Decentralized Finance or DeFi. These crypto loans rely on smart contracts to ensure you adhere to the loan requirements. Here, you take control of your crypto assets. However, the lender can take action against you if you miss a payment or if you default. These types of loans can also have higher interest rates.
How to Use Your Crypto Loan
Crypto loans can be used at your discretion. Oftentimes, the lender has no restrictions, so it’s highly similar to a personal loan. Therefore, you can use the money for personal matters, paying your downpayment for a house, purchasing a car, emergencies, tuition payments, debts, or starting your own business. It makes sense for someone with substantial crypto to take out a crypto loan if they want liquidity without selling. However, some lenders won’t be able to give you your loan in cash. It will most likely be in stablecoins, pegged as U.S. dollars or gold, and later exchanged for cash into an account.
Outstanding Benefits of Crypto Loans
Crypto loans offer many benefits, especially when it comes to applying. Here, you don’t need to worry about credit checks. Additionally, approvals and funding only take a few minutes to a few hours. It doesn’t also require selling out your crypto holdings. The loan terms also vary, which can be from seven days to 12 months. Many lenders also offer low interest rates. Finally, you can use this loan for any purpose. As mentioned above, you can use it to your discretion and the lenders don’t have any restrictions over it.