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Compare crypto loans for debt consolidation

Crypto debt consolidation loans come with low rates and few requirements — but understand the risks before you opt for one.

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Name Product Loans
Binance Cryptocurrency Exchange
50% LTV ratio
Borrow US$100 minimum
~10% APY
Trade an extensive range of reputable coins on this world-renowned exchange, popular for its high liquidity and multi-language support.
CA residents: Binance is not currently available to Ontario-based users.
Nexo Cryptocurrency Lending
50% LTV ratio
Low/no minimums for crypto and fiat loans
APY from 5.9%
Borrow and lend fiat, stablecoins or cryptocurrency, with 24/7 customer service and the option of using NEXO tokens for more competitive offers.

Compare up to 4 providers

5 reasons to use a crypto loan for debt consolidation

If you already own cryptocurrency, a crypto-backed loan may help you qualify for a lower interest rate than you’d find with a personal loan while allowing you to continue holding on to your digital assets.

Here are the main reasons to consider when using a crypto loan to consolidate credit cards and other unsecured debt.

1. Qualify for low rates with fair or bad credit.

Crypto loans interest rates usually start at 0% APR with Nexo, 1% APR with Celsius and 4.5% APR with BlockFi. For comparison, the interest rate on credit cards in Canada tend to range around 20%.

The average interest rate on a personal loan is 7.9%. But borrowers with a credit score less than 660 likely can’t qualify for a rate that low — if they can qualify for a personal loan at all — and may pay as much as 46.96% APR. Even with good credit, if you carry a high amount of debt, it can make it difficult to qualify for a competitive rate.

2. Access the value of your crypto while avoiding taxes.

Cryptocurrency sales are subject to capital gains taxes, which may be more expensive than a crypto-backed loan. In Canada, you only pay tax on 50% of any realized capital gains, which counts as part of your total income and helps determine which tax bracket you fall into. The amount of income tax you then pay will differ depending on the the province or territory in where you live. That means you’re only taxed on cryptocurrency you sell.

Because you don’t sell or trade your crypto to get this loan, the amount you borrow or pay back is not subject to capital gains. But if you default on the loan and your lender sells off your collateral, that will trigger a taxable event.

Guide to cryptocurrency taxes in Canada

3. Avoid selling your crypto.

Another benefit to using a crypto-backed loan to pay down your debt is that it allows you to avoid selling your digital assets. Even if your capital gains tax rate is lower than the rate on a crypto-backed loan, you could lose out on any potential future earnings if the market swings up.

Like a home equity loan, using your crypto as collateral allows you to cash in on the value of your crypto assets and hold your assets.

4. No credit, debt or income checks.

Unlike personal loan providers, crypto lenders don’t check your credit score or debt-to-income ratio to determine approval. Instead, your interest rate largely depends on your loan-to-value ratio (LTV) — or how much crypto collateral you pledge compared to the amount you borrow.

Most lenders require you to pledge crypto worth at least twice the amount you want to borrow — an LTV of 50% — with lower rates if you pledge even more collateral.

5. No risk to your credit score.

Crypto lenders don’t report to credit bureaus like TransUnion or Equifax. This means that when you transfer your debt to a crypto loan account, credit bureaus will treat it as though you fully paid off your debt, lowering your credit utilization ratio. A lower credit utilization ratio is a factor in increasing your credit score.

However, making on-time payments toward a crypto loan won’t improve your credit the way paying down a personal loan will. Because your history of payments is among the most important factors in your credit score, the positive effect of debt consolidation with a crypto loan may not be as dramatic as using a personal loan. But defaulting won’t hurt your credit score either.

So when it comes to your credit score, consolidating your debt with a crypto loan can only increase it — though it may be a modest increase compared to a personal loan.

4 reasons to avoid debt consolidation with a crypto loan

Crypto-backed loans come with a different set of risks than a traditional debt consolidation loan.

1. It’s easier to default on a crypto loan than on a traditional loan.

Even if you make your payments on time, it’s possible to default on a crypto-backed loan. Like with securities-backed loans, your loan automatically defaults if the value of your collateral decreases to the point at which your loan balance is worth around 85% of the collateral’s value.

Many lenders send out notifications —or margin calls — asking you to add more collateral if your collateral appears to be losing value.

But this might not help if the market quickly drops. That’s why many lenders recommend adding as much collateral as possible to the loan — and most don’t offer a loan-to-value ratio (LTV) of over 50%. This means that you have to pledge crypto worth at least twice the amount you want to borrow.

It’s worth noting that a default on a crypto loan will not affect your credit rating. But you will lose your crypto assets — and potentially lose out on future gains.

2. Crypto lenders aren’t CDIC-insured.

Unlike traditional lenders, crypto lenders can’t use CDIC insurance to protect the collateral you use to back the loan. In most cases, you can lose your assets if the lender becomes insolvent or files for bankruptcy.

While many crypto lenders use private insurance to protect against theft, it typically only covers a fraction of the assets the provider has in its custody. Lenders like US-based Unchained Capital protect against this by storing your collateral in a multisignature — or “multisig” — wallet, where the borrower, custodian and lending platform all have keys.

3. Short terms give you less time to pay down your debt.

Most crypto loans come with terms that max out at 12 months. And while it’s possible to find terms as long as 36 months, it’s uncommon. This essentially limits you to debt that you can pay off within a year.

If you aren’t expecting a large amount of money to come in within your loan term, other alternatives may be less expensive and less risky. For example, consolidating your debt with a balance transfer credit card typically gives you a 0-3% APR for the first 6 to 9 months. If you have a good or excellent credit score of 660 or higher and can afford to pay down the amount you want to borrow in this time frame, this could be a stronger choice.

Personal loans come with terms of 3 to 60 months and may offer installments that are easier on your monthly budget. But you also need good or excellent credit to qualify.

4. Lower rates go to higher loan amounts.

While it’s possible to borrow as little as $50 from some crypto lenders, it’s possible that you’ll pay a rate of around 1% to 10% APR. That’s because the lowest interest rates are typically only available from lenders that offer high loan amounts.

Let’s take a look at some examples.

LenderLoan amountAPR
BlockFiMin. $10,0004.5% - 9.75%Read review
GuardanMin. $10010% to 14%Read review
MyConstantMax. $50,000from 6%Read review
LednMin. $50010.9%Read review

It’s true that the lowest debt consolidation loan rates are typically only available on the highest amounts. And personal loan rates can run much higher than crypto loans, maxing out at 46.96% APR. But because personal loans are rarely available at amounts of more than $50,000, you usually don’t need to borrow as much as you would with a crypto lender to qualify for the lowest rate.

How to consolidate debt with a crypto-backed loan

Debt consolidation with a crypto-backed loan works a lot like using a personal loan to consolidate your debt. The main difference is that, unlike some personal loan providers, your crypto loan lender won’t send the funds to your other lenders directly.

1. Set up an account with your crypto lender.

After you’ve shopped around and selected a lender, follow the steps to set up an account and verify your identity. This can take a few days. Once your account is set up, add enough crypto assets to your new wallet to secure your loan.

2. Get the payoff amount from your creditors.

Reach out to your creditors and ask them how much you will owe on the date that you plan to pay off the loan. This amount will be different from your current balance, because your account will continue to accrue interest while you’re applying for the loan.

Give yourself a few days after you plan to apply for the crypto loan. It can take two to three business days to have the funds sent to your bank account — and another few days to transfer them to your creditors.

And if you receive your loan in a stablecoin like USD Coin, it can take a few more days to exchange those funds to CAD.

3. Request a loan.

Using your lender’s app or website, complete the form to request a crypto-backed loan. Typically this step only takes a few minutes — you’ve already verified your identity.

4. Pay down your debt.

After you’ve received the loan funds, follow your creditor’s instructions to pay off your accounts. If you’re paying down credit card debt, consider keeping your accounts open — even if you don’t plan on using them. Closing loan accounts lowers your overall credit utilization ratio, which can lower your credit score.

How to find the right crypto lender for debt consolidation

Use any crypto loan to consolidate debt, but some may be a better choice than others. Compare these factors when shopping around for a crypto lender:

  • APR. Aside from looking for the lowest rate, compare the APR to the lowest rate you might receive through other debt consolidation options like personal loans. Also consider how much the rate you’ll pay compares to the tax rate for selling your crypto.
  • Loan-to-value ratio. Most lenders require you to pledge crypto assets worth twice as much as you want to borrow. But to reduce the risk of default, consider a lender that allows you to pledge even more collateral.
  • Fees. Unlike personal loans or credit cards, many crypto loans come with a prepayment penalty. This means that you won’t be able to save on interest if you pay down your debt ahead of schedule.
  • Issued currencies. Look for a lender that issues loans in Canadian dollars. Otherwise, you’ll wait a few more days to exchange your loan funds into a currency that you can use to pay your creditors.

Compare crypto loans

3 more ways to pay down debt

Crypto loans are a relatively new and untested way to consolidate debt. And it may not be right for everyone. Consider these alternatives before you sign up with a crypto lender:

  • Debt consolidation loans let you transfer your debt to a personal loan with no collateral required. They can offer lower interest rates than your typical credit card and require fixed monthly payments over 3 to 5 years.
  • Balance transfer credit cards allow you to transfer the balance of your credit cards to a new card with a promotional 0-3% interest rate. These are best for debts you can pay down within a year, because the interest rate after that period is typically higher than a personal loan.
  • DIY debt payoff methods like the avalanche or snowball methods help you strategically pay down your debt by focusing on the debt with the highest rates for the most savings — or lowest balances for quick wins.

If none of these are options for you, consider signing up for a free credit counseling session. Credit counselors will sit down with you to assess your options and help you come up with a personalized plan to get out of debt.

Bottom line

Low rates and easy-to-meet requirements can make crypto loans an attractive alternative to conventional debt consolidation methods. But risks differ from a traditional debt consolidation loan. Read our guide to debt consolidation to learn more about how debt consolidation works. And see our guide to crypto loans to learn more and compare your options.

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