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Loans funded in bitcoin: What you need to know

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Should you risk borrowing in this volatile currency for low rates and no credit requirements?

Like everything else that surrounds bitcoin, getting a loan with this cryptocurrency is different than financing a loan in US dollars. Interest rates are often lower, your credit score doesn’t matter and funding comes from individuals, not institutions. But it’s also much riskier, and investors are often attracted to new business ventures — individuals looking to invest in another cryptocurrency but don’t have the cash or those needing funds to start a cryptocurrency mining operation.

In other words, it’s generally not for noobs.

BlockFi Cryptocurrency Loans

Our top pick: BlockFi

Access the value of your crypto assets without cashing them in.

  • Minimum Loan Amount: $2,000
  • Maximum Loan Amount: $10,000,000
  • Loan Terms: 1 year
  • Requirements: Have at least $6,000 in cryptocurrency and no recent bankruptcies

    Where can I get a bitcoin loan?

    The most common place to get a bitcoin loan is through an online service that matches lenders and borrowers. Here are two of the top bitcoin loan platforms providers.

    PlatformHow it worksRequirementsHeadquarters Location
    BlockFiApply online, provide details about your crypto assets and borrow up to 50% of your Bitcoin’s value in US dollars.Birthday, Social Security number at least $4,000 in Bitcoin, Ether or Lightcoin. Not available in HI, NV, VT or SD or to borrowers with recent bankruptcies.New York
    More
    BitbondSign up online, verify your email address and complete your profile.Business accounts and social media profiles with verifiable contact information.Berlin, Germany
    More
    BTCPOPSign up, verify your contact and personal information, create a listing and wait for investors to fund your loan.Name, email address, identity verification.Marshall Islands

    Be cautious of finding a lender on bitcoin forums

    You can get a loan in bitcoin without going through a platform by visiting online forums and directly dealing with individual dealers. You might not have to pay a platform fee, but it’s much riskier for both the borrower and the lender.

    This is because it’s even harder to verify someone’s identification on a forum. And if something goes wrong, you might not have legal recourse to get your money back.

    Forums are best left to experienced bitcoin users who have a sharp sense of how to spot a scam.

    How do bitcoin loans work?

    First, here’s how bitcoin works

    To understand how bitcoin loans work, you’ll need to understand what bitcoin is. Basically, bitcoin is a cryptocurrency that operates entirely online. It’s decentralized, meaning no particular organization, individual or country controls it. This allows bitcoin users to make direct transactions between one another without a third party — like a bank — getting involved.

    Transactions are recorded and published on an electronic ledger called a blockchain, which anyone can access. The blockchain relies on several anonymous computers — called miners — to verify the legitimacy of transactions before they join the blockchain to prevent fraud. Rather than the blockchain existing on one server, leaving it vulnerable to hackers, it’s distributed to all bitcoin users.

    Confused? Read our beginner’s guide to bitcoin

    How does borrowing a loan in bitcoin work?

    On a basic level, bitcoin loans work like your standard term loan: It’s borrowed money that you pay back plus interest and fees over a predetermined period of time. You can pay it back in fixed installments or all at once, depending on your lender or your preferences. You can also get bitcoin lines of credit and short-term bitcoin loans.

    That’s where most of the similarities end. Because bitcoin isn’t affiliated with any central government or banking institution, your typical bitcoin loan will be from other bitcoin users. You’ll also need to factor any commission on the current exchange rate into your fees.

    The easiest way to get a bitcoin loan is through a peer-to-peer platform that connects investors with borrowers, usually for a fee. To borrow through a bitcoin loan platform, you first need to set up an account and wait for verification.

    Bitcoin lenders don’t rely on the typical ways of judging your creditworthiness, such as your credit score or debt-to-income ratio. Instead, platforms give you a trust score — sometimes called a credit score or rating — based on how much they’re able to verify about your identity and financial history. To get a high trust score, you might need to submit extensive documentation.

    Once your account is verified, you typically need to select your loan type and submit your application form. You can receive loan offers in as little as a few hours and get your funds instantly once you accept.

    What documents will I need?

    Because you won’t be going through a traditional lender, some of the documentation you’ll need to provide to get a bitcoin loan will be different than with a standard loan.

    • Government-issued ID. A scan of your passport is preferred, because many of these sites are international.
    • Verification of your address. Utility bills in your name are ideal.
    • Verification of your email. Typically the platform sends a link or a code to your email address.
    • Credit card verification. Bonus points if you can prove that you’ve consistently paid your credit card bills on time.
    • Connection to your social media. The more the better — which helps prove that you’re a real, active person.
    • Connection to online payment accounts. Platforms use your transaction history on online accounts like PayPal or eBay to verify that you pay for things on time without red flags in your past business dealings.
    • Verification of income. Recent pay stubs, invoices or tax forms prove your ability to repay a bitcoin loan.

    What are the eligibility criteria?

    Getting a bitcoin loan might be less involved than going to a bank. But you still face basic eligibility requirements. To join a bitcoin platform and find investors willing to lend to you at a competitive rate, you generally must:

    • Live in a country where bitcoin is regulated, such as the United States
    • Hold a steady job
    • Have a high trust score

    How are bitcoin loans different from other peer-to-peer loans?

    While bitcoin lending platforms sound similar to other online peer-to-peer lenders, like LendingClub or Prosper, you’ll find key differences:

    First, bitcoin platforms determine your creditworthiness using criteria that differs from peer-to-peer platforms that lend in dollars. Bitcoin platforms tend to focus on your online presence, and they often don’t care about your credit history or how much you owe elsewhere.

    In contrast, peer-to-peer dollar platforms don’t care much about who you are but put a lot of weight on your credit score and other aspects of your financial history.

    Also, bitcoin lending is less regulated than dollar loans. There’s almost no underwriting compared with dollar peer lenders. There’s also sometimes no recourse for lenders to get compensated if the borrower lives in another country and defaults. And bitcoin loans tend to default at a much higher rate, making them riskier from the investment end.

    Drawbacks to consider before applying

    • Lack of regulation. Bitcoin is regulated in several countries, but not nearly by as many countries as other types of government-backed currencies. It’s likely that you’re borrowing from several countries, making it difficult to hold your lender accountable if something goes wrong.
    • Volatile currency. Bitcoin’s value fluctuates widely throughout the day. If you take out a bitcoin loan and convert it to another currency, you could end up owing several times the amount you borrowed due to varying exchange rates.
    • High default rate. Whether it’s due to fewer consequences or the difficultly in repaying them, these loans come with much higher rates of default than your standard bank loan.
    • Most platforms aren’t based in the US. The little regulation that exists differs by country, and getting in touch if you have trouble with your account can be difficult.

    Investing in bitcoin lending

    Bitcoin investing is a high-risk, potentially high-return game. It’s easy to start if you already own a peer-to-peer account.

    Once you’re logged in, you can shop around for borrowers to fund and choose the amount you’d like to invest. Platforms typically charge a fee on your returns — typically 1% to 10%, though it can go higher.

    The high default rate, relative lack of recourse if a borrower defaults and ever yo-yoing value of the currency all pose significant risks to an investor. Consider getting insurance on your investments to try to deflect these risks and make sure you carefully consider who you’re lending to.

    Don’t want a bitcoin loan? Here are 4 alternative financing options

    Given its relative lack of regulation, bitcoin isn’t always as stable as the good old American dollar. If you’d rather take on a more traditional loan with similar features and requirements, you might want to try:

    1. Loans backed by bitcoin assets. Some lenders like BlockFi offer personal loans in USD secured by the value of your bitcoin or ether. These loans come with highly competitive rates and are often easy to qualify for. But you could be on the hook for full repayment if the value of bitcoin takes a serious dive.
    2. Peer-to-peer loans. P2P dollar loans have some of the benefits of bitcoin loans — a similar structure, relatively low interest rates — without the risks that come with dealing in a hard-to-regulate cryptocurrency.
    3. Online brokers. Finding a personal loan that you qualify for and meets your needs can take some time. Online loan marketplaces work to match you with a suitable lender you’ll likely qualify for.
    4. Bad credit personal loans. Many bad credit lenders look beyond your credit score to other parts of your financial history when underwriting your loan, just like bitcoin lenders.

    Bottom line

    Bitcoin loans are new and not well regulated. But they could be a viable alternative form of financing for someone who doesn’t meet standard credit requirements. Interest rates are often lower and funding can be nearly instantaneous. Still, even if you don’t have stellar credit, understand how cryptocurrencies operate. As the blockchain gets longer, the extra energy it takes to complete a block could lead to more expensive loans.

    Before you dive first into bitcoin borrowing, check out your other personal loan options before deciding which best fits your needs.

    Frequently asked questions


    Anna Serio

    Anna Serio is a staff writer untangling everything you need to know about personal loans, including student, car and business loans. She spent five years living in Beirut, where she was a news editor for The Daily Star and hung out with a lot of cats. She loves to eat, travel and save money.

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