Bitcoin fanatics depending on holding their Bitcoins for the long-term are called ‘HODLers’. People in need of money choose to opt for loans using their property or vehicle as collateral. HODLers can also get cash against their cryptocurrencies, whenever they need without any concern about selling their cryptos.
BitCoin loans are valuable at the moment because HODLers can use the borrowed money in a variety of ways including business development, pay pending debt, buy a home, go on a tour, etc. The only condition is to pay the Bitcoin backed loan on time as agreed and get your asset back.
Many online sites lend fiat currency for Bitcoin. The process is simple
but needs a little research regarding the potential lending company.
Financial services related to the regular monetary system offers crypto loans. These companies adhere to a KYC policy, so you will need to provide your name, address, and ID proof in your profile. Your ID will be verified and then you will be able to apply for a loan.
Loan application form
You will have to fill a loan application form on the website of the lender. It is a simple form that asks certain information like the amount of loan you need and the duration.
The majority of Bitcoin loan providers offer global lending services with few conditions. Read the T&C to find out if your country is included or not. You will get to know which States are omitted on the loan provider’s website. Besides, you will need to be 18+ to qualify for BTC backed loan.
No need for a credit check
The biggest advantage of the crypto-collateral loan is that lending services are not concerned about the borrower’s credit history. It is because of the collateral company received as security. In case, you are unable to pay, the lender sells your crypto asset. You just need to perform an ID verification process like it is conducted on the Bitcoin exchange.
Application approval duration
Your loan application gets reviewed and you get an answer in several hours. There will be certain details specified like –
- Who is borrowing from whom?
- How much is borrowed?
- What is the duration?
- What is the interest rate?
- When to pay the interest and in what form?
- Extra fees, if any
- Loan to value ratio that needs to be maintained
What is the Loan to value ratio?
LTV = current Bitcoin price: the amount of credit paid out to the borrower
Because Bitcoin is highly fluctuating its LTV ratio is 1:2. It means you will need to deposit double the value of Bitcoin to the amount you borrow. Bitcoin rates can suddenly collapse, so this is reasonable.
Where your BTC does get stored?
Your BTC collateral gets stored with an independent custody service. It ensures that you gain your BTC even if the loan provider goes bankrupt. The loan provider will gain access to your BTC-collateral only when you don’t respond to margin call and so they need to sell it as prices are falling.
When the price falls extremely the LTV gets disturbed, so you are asked to deposit more cash or cryptocurrency and top your collateral.
In case of price increases, you can ask for an extra loan or part of deposited BTC. If you are unable to pay on time then apply for term extension. It is up to the loan provider to agree or sell your BTC.