Crypto lending is the process of lending cryptocurrency to a borrower through a crypto lending or exchange platform. Typically, the lender is another crypto investor. A borrower gives digital assets and crypto holdings as collateral or security to the lender, who in turn gives cash or stable coin and charges interest on the loan. Therefore, the borrower can have the loan without necessarily selling his crypto coins, use it, then later repay within a set period agreed on. Once you have repaid the loan, you get ownership of your crypto holdings and assets. However, before you go to a crypto lending platform or crypto exchange for crypto lending, what truths should you know?
Crypto Lending is Fast
One of the reasons why crypto investors in need of cash quickly opt for crypto lending is its quick speed. A borrower can get access to the loan after a few hours of submitting the loan application form and accepting its terms and conditions.
Therefore, if you are a crypto investor and need quick cash for certain emergency needs, you may opt for requesting a crypto loan from a lender.
In case you making a crypto payment with fewer holdings, some payment sites provide crypto payment loans either for long or short-term periods.
Crypto Lending is Flexible
The beauty of crypto lending as a solution to getting money quickly is in its flexibility. It is not rigid as it accommodates a variety of loans regardless of a borrower’s reason for requesting the loan. For instance, a crypto investor may consider securing a crypto loan when in need of cash liquidity. This is especially the case for those who have been in the crypto space for a long time now since they are mostly reluctant to liquidate their digital assets. In such a scenario, they may opt for a crypto loan instead, to meet their short-term needs, emergencies or when they come across an investment opportunity they cannot overlook.
Nonetheless, there is no fixed pay-back range for borrowers. This is because borrowers have different capabilities. While others can repay the loan after a few days, others can go up to 1 year or more before paying back the loan.
The Process has the Possibility of Hacking
There has been an increased rate of hacking with the continued growth and popularity of crypto. This is because cybercriminals know that an increase in crypto investors breeds an increase in individuals they can target with their schemes.
Therefore, as a crypto borrower, handing over your crypto assets and holdings as collateral before getting the loan, you should be concerned with your safety on the platforms and that of your digital assets as well.
Therefore, both crypto lenders and borrowers should first research the crypto lending platform to ascertain it has a good reputation in the financial markets and that it is a secure space for giving and receiving loans.
Notably, since the whole process of lending is subject to cryptojacking, you may invest if the crypto lending platform has an insurance policy that covers any damages that may result in case of such possibilities. However, if the crypto assets are not insured, you risk losing them in case they are hacked or if the lender faces insolvency.
Crypto Lending Involves Transfer of Ownership
Both the crypto lender and borrower transfer ownership. A cryptocurrency borrower will have to offer his crypto holdings to the lender as security. In this case, the investor turns over the ownership of his digital assets to the lender until the repayment of the loan.
The disadvantage, in this case, is that there are chances of losing funds, especially if the lender becomes insolvent. On the other hand, if the borrower defaults on payment, most crypto lending platforms allow the lenders to remain with up to 80% of the collateral.
On the other hand, the crypto lender also deposits their cash in an exchange platform, with the trust that the platform or its third parties will ensure its safety. The good thing, however, is that the lender makes money, thanks to the interest the borrower pays in the end.
The Process of Getting the Loan is Straightforward
As earlier mentioned, there is a crypto lending platform that connects the crypto borrower to the crypto lender. Therefore, the first thing a borrower has to do is to identify a platform to work with. There is a huge range of lending platforms including crypto banks, online lending sites as well crypto exchange sites. After this, he needs to follow these 3 steps;
- Create an account; the crypto lending platform will typically require a lot of verification from the borrower. This includes verifying his identity, collaterals, and reliability by looking into the borrower’s financial history.
- Select the loan type; crypto lending platforms typically have various loan types. this is affected by the collateral or security a borrower is willing to put up versus the interest he is willing to pay. The higher the interest rate, the lower the collateral needed.
- Get the loan offers; Once everything is set; the borrower is done submitting the loan application form, and he gets the loan offers within a short while, usually after a few hours. He instantly gets the money after accepting the terms and conditions of the loan.
Crypto Lending Can Be Risky to Borrowers
Cryptocurrency is a highly volatile space. It is no wonder investors should always put in an amount they can afford to lose. Similarly, a crypto borrower should always keep in mind the risky nature of cryptocurrency.
For instance, a borrower can put up his crypto assets and holdings that are highly valued at the time of getting the loan. Unfortunately, if there are wild fluctuations within the period agreed on, the value of the collateral may decrease. This, in turn, means that the lender may request more collateral from the borrower to get back the original value. The results are either a disruption of the borrower’s financial plans or a penalty in case of a lack of crypto to meet such requests.
Are you For Crypto Lending?
Crypto lending as a process of giving money to a borrower who will in turn pay at a later date with interest, is a solution especially for investors in need of cash quickly. Nonetheless, it allows the lenders to make more money since the borrowers will pay back the loan with interest. However, before you think of lending or borrowing cryptocurrency loans, you should remember the space is volatile and risky, hence all parties involved should ensure safety measures are in place.
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