The idea of getting a loan using Bitcoin sounds like it’s years away from being a viable lending option. But the truth is that Bitcoin loans are a secure and almost immediate way to help you reach your financial goals — and you can get one today.
How Does A Bitcoin Loan Work?
When a borrower takes out a Bitcoin loan, they’re not trading their Bitcoin. Instead, they use Bitcoin as collateral to take out a certain percentage of what their Bitcoin is worth in fiat money (usually around half of the Bitcoin value in their account) and pay it back over time.
Many platforms will also place general minimums on these loans. The money can be used to purchase a car, a house, or anything else a traditional loan would cover.
At Vauld, we make the process easy by providing loans on over 30 different tokens so you can find the option that’s right for you. Take out a low-interest loan against your existing crypto assets and borrow up to 66.7% of your token’s total value. You can even choose from several repayment options that best fit your needs.
Receiving a Bitcoin loan, however, isn’t without its risks. Looking at the advantages and disadvantages of this innovative loan process will help determine whether taking out a Bitcoin loan is right for you.
Advantages Of Bitcoin Loans
When a Bitcoin loan is thought out and managed strategically, the benefits exceed all other lending options. With these loans, users typically experience a quicker approval process, more flexibility with their repayment, and better rates over traditional loans.
Keep Your Bitcoin
For many people with Bitcoin who need to borrow money for a purchase, a new endeavor, or an emergency, the thought of a traditional loan isn’t nearly as disheartening as having to sell their crypto.
With a Bitcoin loan, you get to avoid both routes altogether.
Waiting for a traditional bank loan to be approved and processed can take days, even weeks. Bitcoin is out to put an end to the waiting game by providing loans in a few hours rather than a few days. This is especially advantageous if the money is needed for an emergency.
No Capital Gains Taxes
Selling your cryptocurrency for cash can result in capital gains taxes. But when you borrow the funds you need against the value of your crypto instead of selling it, you avoid locking in gains.
Lower Interest Rates
Bitcoin is known for unbeatable interest rates compared to banks. Depending on the type of loan received from a bank, you can expect your interest rate to be in the double digits, sometimes even skyrocketing to over 30%.
Borrowing against Bitcoin is a completely different story. Expect rates up to 12% depending on which platform you choose. These lower rates can significantly reduce the amount of time it takes you to pay back a loan.
With Vauld, you can secure a loan against the value of your crypto for as low as 4% APR (depending on which tokens you borrow against).
No More Credit Checks
When you no longer have to rely on a bank to receive funds, you avoid all of the hassles that come with taking out a loan through the bank.
And borrowing from a bank when you have a less-than-ideal credit score can mean paying those sky-high interest rates or not getting the loan at all. On the flip side, Bitcoin lending platforms often do not check your credit when you apply.
If you have Bitcoins to use as collateral for a loan, the odds of being approved are high.
Risks Of Bitcoin Loans
While there are many great things to be said about Bitcoin loans, there are several risks to consider as well. From Bitcoin’s volatile valuation to greater default impacts, taking out a loan with Bitcoin should only be done after taking its disadvantages into account.
The story that seems to be as old as Bitcoin itself is its sudden fluctuations in value. It might not even be possible to read an article on Bitcoin that doesn’t also mention the word “volatile” at some point.
On top of this, it’s important to remember that, while the crypto is not being traded, as the borrower, you will not have access to your assets until the loan is paid back in full.
If the value of Bitcoin were to soar past its initial record of nearly $64,000, some people might be interested in cashing out. If you fall into that category, then this can be an unfortunate situation if your Bitcoin is all tied up in a loan.
A simple way to avoid this fear of missing out is to not use all of your Bitcoin for lending purposes if possible. Keep some on-hand in case of increasing value, and you’ll win both ways.
Bitcoin volatility can be a double-edged sword when it comes to loans. When the value of the Bitcoin being used as collateral falls below a specific threshold, a margin call happens.
Margin calls are when you must increase your holdings in order to adjust the collateral’s value back to the initial loan ratio and maintain your loan. Since the value of Bitcoin is unpredictable, margin calls are yet another reason to avoid using all of your Bitcoin for a loan.
Defaulting on a loan is never good. A default on a bank loan has plenty of downfalls, from a major credit score hit to property being seized. But when it comes to Bitcoin, the collateral is already in the hands of the lender.
If, as a borrower, you default on your Bitcoin loan, then platforms will usually allow lenders to keep upwards of 80% of the collateral. If the value of Bitcoin happens to increase significantly when this happens, you may end up losing a lot more than you might have ever expected.
How To Get A Bitcoin Loan
Receiving a Bitcoin loan through the right platform is going to be what makes the difference between avoiding the risks and making the most of the advantages. Once you understand what these are, getting a loan is relatively easy.
Choose The Right Platform
It goes without saying that you’ll need to have Bitcoin stored with the platform of your choice before getting a loan. You can expect a loan minimum with most platforms. And whatever the minimum is, you’ll need about double that amount in Bitcoin’s fiat value.
Some platforms will require a loan minimum upwards of $10,000. But at Vauld, we give borrowers more financial independence by setting our minimum at $1,000 for anything life might throw your way.
Choosing the right platform to partner with also means choosing the right security. Look for companies that implement multi-factor authentication (MFA) passwords to account for the evolving capabilities of hackers.
MFA passwords heighten your account’s security by requiring multiple steps to verify that the individual accessing your account is actually you.
Vauld lets users enable MFA for every critical action performed on an account as a best-industry practice to greatly reduce the risk of an account being hacked.
Create An Account
Setting up an account should be the easiest part. With Vauld, creating an account is as simple as signing in with an existing account, like Google or Coinbase, or creating a unique username and password.
We remain transparent with our terms and conditions so users can know exactly what to expect.
Select Your Terms
The terms for Bitcoin loans vary depending on the chosen platform, but you first decide how much to borrow within certain limits.
Repayment schedules might be determined by the platform, but you might sometimes have the option to choose this timeframe yourself. Rates can also vary. Obviously, you want to look for the lowest interest rates you can find.
Having all of this information upfront is important for helping you understand whether or not you will be able to afford regular payments.
Once the steps above are completed, all that’s left to do is withdraw and repay.
Bitcoin Loans From Vauld
The best Bitcoin loan options not only offer good and transparent rates but also take visible steps to protect borrowers’ assets. Establish any additional fees before borrowing, and always be aware of hidden fees that some companies try to implement.
With Vauld, you can borrow without worrying about mediocre rates or hidden fees. And, with a centralized lending pool insured for up to $100 million, you can rest easy knowing that your assets are safe.
Ready to invest in your financial future without giving up your crypto? Sign up with Vauld today to borrow up to 66.7% of your Bitcoin’s value and choose from several repayment options that best fit your needs.