Crypto loans are an object of high interest among the crypto community. Many platforms offer them with different conditions, and it takes some research to choose the right one. In this article, we will go through the most important knowledge about crypto loans.
What are crypto loans?
Just like any asset, cryptocurrencies can serve as collateral for loans. Crypto loans are secured loans that use crypto holdings as collateral in exchange for liquidity from a lender. When the collateral is received, the lender issues the loan.
One of the important conditions for taking crypto loans is to hold crypto. Usually, the amount of the loan is a loan-to-value or percentage of the collateral crypto. The percentage is different and could be up to 90% depending on the lending platform. Different lenders accept different types of cryptocurrency as collateral, some accept more than 40 coins. After repaying the full amount, the pledging crypto is returned at the end of the loan term. Loan terms are different and could be between seven days and years.
Take a crypto loan on Gate.io
Gate.io is one of the oldest crypto exchanges and offers a long list of financial services. Among them are crypto loans. Gate.io is one of the safest platforms, which is an important condition for taking any loan – the lender has to be stable and reliable. The interest rate is calculated via the formula: Interest = loan volume * daily interest rate/24 * the total number of hours.
Gate.io provides risk management services according to the loan-to-collateral ratio of crypto loans. Loan-to-collateral ratio = value of the loan (including interest) / value of the collateral. The lower the loan-to-collateral ratio, the safer the collateralized funds and the lower the risk of liquidation. The initial borrowing loan-to-collateral ratio is 70%. When the loan-to-collateral ratio reaches 80%, Gate.io will remind the borrower through email or app notifications that the loan-to-collateral ratio has reached 80% and the borrower can add collateral to the position, thereby lowering the loan-to-collateral ratio and the risk of liquidation. When the loan-to-collateral ratio reaches 90%, Gate.io will automatically close the position and convert the collateral into the borrowed currency to pay off the loan. The left collateral will be returned to the borrower after the forced liquidation. The number of left collateral assets may be affected by market volatility. Principle and interest receivable of the lender would not be affected by the forced liquidation.
How to get a crypto loan on Gate.io’s website?
There are a few simple steps:
- Login to your Gate.io account
- Go to “Finance” -> “Crypto Loan”
- Find and choose the currency you want to borrow.
- Enter the volume of the loan -> select the collateral currency and enter the amount
- Select “Confirm loan”
To find all details, docs and make payments, you can go to the bottom of the “Crypto Loan” page and find “Borrowing History”.
Take crypto loan at Gate.io here: https://www.gate.io/cryptoloan/USDT
What are the advantages of crypto loans?
Crypto loans have many advantages. Their interest rates are lower compared to traditional loans. The approval process is much easier than when taking a traditional loan and no credit check is needed. One of the most important benefits is that you can have access to money without selling your crypto holdings and revealing information. Usually, holders who believe that their crypto assets’ value will increase in the future and don’t want to sell them, enjoy crypto loans because they give them the opportunity to have assets for spending.
What are the risks of crypto loans?
Some of the risks that should be considered include the requirement for additional collateral in case the value of the main coin fails. In such a scenario, lenders can liquidate the account, issue penalties, or generate automatic payments. The fact that an existing crypto portfolio is required might be seen as a disadvantage of crypto loans, especially for beginners. If you choose a CeFi lender, you do not have access to your crypto, so the trust issue is questionable.
Should you take a crypto loan?
Crypto loans’ usage is wide. They can be used like any personal loan for any need. From buying a house or a car, repaying another loan or a debt to starting a dream business. They can be used by anyone for anything. However, they are mostly used by crypto holders with a significant amount of crypto that want liquidity but don’t want to sell. Usually, crypto lenders don’t give cash in EUR or USD, instead, they provide stablecoins that are pegged to the U.S. Dollar or another asset that can be exchanged and turned into cash. Before taking any crypto loan, it is important to research the conditions of the lender and to what cryptocurrency the loan could be received.
Crypto loans are an important part of the crypto industry network. They are offered under different conditions and by many lending platforms. Before choosing a lender, everyone should DYOR and match certain requirements, like already holding coins that could play as collateral. Even though there are some risks, overall crypto loans have more advantages, especially for holders that don’t want to sell their assets because they believe in the increase of their value but need cash for spending.
Author: Kristina Micheva, Gate.io Community Manager, Researcher