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How to get a crypto loan
Skip the credit check with fast funding, but keep an eye on crypto price swings.
Crypto loans are secured loans that use your cryptocurrency as collateral. The benefit is that you get to keep your cryptocurrency and any future appreciation in value — while tapping into its value now in the form of cold, hard cash.
The process is typically much faster than for other types of loans, sometimes within the same day you apply. But you need to stay on top of your crypto’s value during market dips. If the price of your crypto suddenly drops, you’re at risk of losing your collateral unless you can take steps to correct the situation.
Step 1: Calculate how much you can borrow
The first step to getting a crypto loan is understanding how much you’re eligible to borrow, which depends on three factors:
- How much crypto you own
- How much you’re willing to pledge as collateral
- The lender’s maximum loan-to-value ratio — or LTV — requirement
The LTV is the amount of collateral you must pledge versus the amount of the loan.
For example, if a lender requires an LTV of 50% on a $1,000 loan, you need to pledge at least $2,000 in crypto as collateral for a loan.
To calculate the LTV on any crypto loan, divide your total loan balance by the value of your collateral and multiply the result by 100.
Here are some numbers to give you a better idea of how much collateral you have to pledge at different LTVs.
|Loan amount||LTV requirement||USD equivalent in crypto needed to pledge as collateral|
What is a typical LTV on crypto loans?
Most crypto lenders require around a 50% loan-to-value (LTV) ratio, but some go as low as 30% while others go as high as 90%. In general, the lower the LTV, the lower the interest rate you’ll get — and vice versa.
While a higher LTV lets you borrow more money, there are some drawbacks:
- The higher the LTV, the generally higher the interest rate, so you pay more in interest over the loan term.
- A high LTV also increases the chance of losing your crypto during a margin call if the price suddenly drops.
What is a margin call?
If your loan’s LTV gets too high – for example, 70% to 90% – you need to add extra collateral to prevent liquidation of your crypto. This is known as a margin call. The lender sends you notices before it gets to this level, but it’s up to you to take action to prevent liquidation.
That’s why you may not want to pledge all your crypto assets as collateral. You may need to transfer more to your account on sudden notice if it drops in value.
Step 2: Compare crypto lenders
The next step is to compare lenders to find the right one for your needs. When choosing a crypto lender, consider a range of factors, including:
What interest rate are you willing to pay?
- Rates typically range from 5% to 14%, depending on the lender and LTV.
- Lower rates don’t necessarily mean you’re getting a better product. Some lenders charge higher rates in exchange for higher service levels and stronger security protocols. For example, some lenders has higher rates than others but have some of the best security protocols in the industry backed by professional advisors.
What kind of rates and fees is the lender charging?
- APR % – The total cost of a loan’s interest and fees over one year.
- Origination fee – The cost of establishing the loan, e.g., 1% to 2% of the total loan amount. Some lenders charge this fee, some don’t.
- Prepayment penalties – If you pay off your loan too early, you may be on the hook for a flat fee or a percentage of the interest rate on the loan. Not all lenders charge a prepayment fee.
- Other fees – Be sure to read the fine print to see what other fees may apply.
How much do you need to borrow?
- Some lenders offer loans as low as $100. Others start at $10,000 and go up to $1 million or more. Some lenders don’t have a maximum loan amount – how much you can borrow depends on how much crypto you pledge.
- When going for a higher loan amount, research your lender and their custodian to ensure the steps they take to protect your collateral.
What is the maximum LTV — and does the lender offer discounts for a lower LTV?
- Low LTVs require pledging more collateral, but you can sometimes qualify for a lower rate
- High LTVs require less collateral but often come with higher rates and a higher risk of liquidation
How often do you have to make repayments?
Depending on the lender and amount, repayments may require:
- Monthly interest-only payments
- Monthly principal and interest payments (P&I)
- Monthly payments and full payment at maturity
- Full payment at maturity only
Keep in mind that if you don’t make monthly payments, you pay more in overall interest for the loan. You’re also at higher risk for liquidation. That’s because your LTV stays the same throughout the loan’s term. When you make monthly payments on your balance, your LTV also decreases each month.
Margin call process
Ask these questions about each lender’s loan margin process to find out how it protects you from liquidation if your collateral drops in value:
- At what LTV levels will you receive margin call notifications?
- How long will you have to add more collateral to your loan before it gets liquidated?
- At what LTV% will your crypto get liquidated?
Lenders with a higher margin call LTV % are a generally safer place for your crypto.
Does the lender accept the types of cryptocurrencies you want to use as collateral?
- Also consider whether you want to pledge multiple coins or use a single one like Bitcoin or Ethereum, as this can impact how much you can borrow.
For example, Guarda, Ledn and Unchained Capital only accept one type of collateral, while MyConstant and Salt Lending are lenders that offer both uni-collateral and portfolio loans, or multi-collateral loans.
How quickly do you want to repay the funds?
- Most lenders offer loans ranging from 3 to 12 months, and some let you renew at the term’s end.
- Monthly repayments may not be required on shorter loans.
How long does it take for you to get your loan after application?
- Most lenders fund in one to two business days, but others, like MyConstant, fund in minutes after your collateral is received. Others, like SALT or Unchained, take longer, although it can be same-day in some cases.
Crypto-backed loans are not protected by CDIC insurance and crypto assets are frequently the target of hackers and scams. The security of your collateral varies by lender. To find a secure lender, look for answers to the following questions:
- How and where does the lender store your collateral and what kind of insurance is offered? How much of your crypto assets would be covered by that insurance?
- If the company offers insurance, what does it cover and under what scenarios? For example, are your funds covered if the company becomes insolvent or goes bankrupt?
- Are you allowed to keep control of your private keys? Unchained Capital is one lender that lets you keep control of your private keys during the loan term.
- Does the lender “rehypothecate” your collateral, which is loaning it out to other parties? Because this increases risk, it’s better to choose a lender that won’t do this.
Compare crypto loans
Compare crypto lenders to find the right loan for your needs. Compare by APR, LTV, accepted collateral and issued currencies.
Step 3: Open an account and verify your identity
To get a loan, most crypto lenders require you to undergo a Know Your Customer — KYC — identification process to open an account and apply for a loan. This typically involves entering some personal information and doing an identity check, which requires:
- Uploading a government-issued ID, such as a driver’s license or passport
- Taking a selfie of yourself while holding your ID in your hand
- Waiting for the KYC process to complete, usually immediately or same-day
Doing the KYC helps the lender lower risk and increase trustworthiness by determining who is a legitimate customer versus a criminal looking to launder money or commit fraud.
Step 4: Apply for the loan
While the application process varies by lender, here are the usual steps to apply for a crypto loan:
- Go to your chosen lender’s website.
- Open an account by undergoing the KYC process.
- Wait for your account to be approved.
- Complete a loan application. Typically you’ll follow these steps:
- Enter the amount you want to borrow.
- Choose the type of collateral you’re pledging.
- Select your LTV – the platform will calculate how much collateral you need to pledge.
- Select the currency you want to receive your funds in.
Depending on the lender, funding can occur in minutes or more typically, within 24 or 48 hours of pledging your collateral.
Step 5: Deposit your collateral
Once your loan is approved, you’ll deposit your collateral with the lender. How this works will depend on where your crypto is stored:
- In your account wallet. If you already have a wallet with crypto inside the lender’s platform, the lender will transfer ownership of your crypto directly from your wallet.
- On a separate online or hardware wallet. You’re given a public address to send your crypto to. This is usually the public address for the custodian that stores your crypto during the loan’s term.
Step 6: Receive your funds
How you receive your funds depends on the type of currency you requested. A lot of lenders offer funds in USD which are typically sent via wire transfer to your bank and can take a day or two. For stablecoin payment in USDC and other currencies, funds are sent to your crypto wallet.
Step 7: Exchange the loan for cash
If you choose to receive your loan in cryptocurrency such as stablecoin, you may want to exchange the loan for USD. This can usually be done inside your account dashboard. Currency exchange fees and wait times may apply, depending on the lender.
Crypto loan alternatives
Crypto loans may be a good option if you want to access cash or stablecoin without having to sell your cryptocurrency. If you don’t already own collateral — or don’t own enough to get a low rate — you may be able to secure financing through more traditional methods:
- Low APR credit cards. Balance transfer cards allow you to transfer debt or make new purchases without accruing interest, usually for 6 to 9 months.
- Unsecured personal loans. Choose from a range of lenders, including direct online lenders, banks, credit unions and peer-to-peer (P2P) platforms.
- Home equity line of credit. Leverage a HELOC to tap into your home’s equity like a revolving credit line that you can use as you need and pay off later.
- Personal loans. Borrow or consolidate debt with online lenders offering up to $50,000 or more.
The process of getting a crypto loan is typically much faster than for other types of loans, sometimes within the same day you apply. But you need to stay on top of your crypto’s value during market dips. If the price of your crypto suddenly drops, you’re at risk of losing your collateral unless you can take steps to correct the situation.
Learn more about crypto loans and how they work in our guide to crypto loans.
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