We all know how traditional loans work, right? We apply for a loan, either unsecured, or by offering up collateral, wait a few weeks, and maybe get funding.
But did you know that crypto lending can offer a faster, more efficient loan process? As more and more people stock up on cryptocurrencies, offering that up as collateral could be a far better approach.
This can also be a powerful strategy for investors, as well. Lending crypto in order to earn interest can become a healthy income stream.
Wondering what potential returns you can earn as a crypto lender? Keep reading for answers to all your questions.
What Is Cryptocurrency Lending?
When it comes to crypto loans, they work differently than you might expect. Most crypto lending takes place as follows.
An individual has a certain amount of cryptocurrency that they would like to keep. However, they are strapped for cash and need a loan in order to cover a purchase.
But they don’t have to apply for a traditional loan from a bank. If they did, they might either pay a high-interest rate for a zero-collateral loan or have to put up their home as collateral.
Instead, they go to a P2P lending platform and put their cryptocurrency up as collateral. The individual lender then offers a cash loan while holding onto the crypto.
Depending on the loan’s payment terms, the borrower may make payments over days, weeks, or even months, paying interest until the loan is paid in full.
Why Get a Crypto Loan
So why would someone want to get a crypto loan? For starters, they are quick. The loan can be agreed upon, and funding deposited in your bank account in hours, not days or weeks as with traditional bank lending.
On top of that, lending terms and payback schedules are very flexible, and just need to be agreed on by the borrower and the lender. So if you only need a loan for seven days, seven months, or longer, you can negotiate that.
For serious crypto investors, they may have a large amount of cryptocurrency in their wallets. And because they believe in these currencies and their rising value, they’d prefer not to sell their crypto and miss out on future gains.
But if they need money in the short term, a crypto loan can provide the best, most flexible option without requiring them to liquidate their investments.
How to Get a Crypto Loan
So if you’ve got some crypto, but need some cash right now, here’s how to get a loan. Your first step is to find a lending platform that you trust.
Some platforms have been around a little while, while many others are popping up every day. Make sure to research, read reviews, and understand what’s at stake when using any particular platform.
Once you’ve chosen a platform, you’ll create an account and get verified. It’s important to verify your account as much as possible in order to increase your chances of getting a loan and getting a lower interest rate.
Then, you’ll likely have the option of choosing a loan type. This will involve the crypto your willing to put up, the amount, the payment terms you are hoping for, and so forth.
Once you do that, you’ll receive offers from individual lenders on the platform. Once you find an offer you like, from an individual who looks trustworthy, you can accept the loan offer and get your funding.
You’ll be paying interest on the loan, which can vary wildly based on many different factors. And you may also need to pay a fee for using the platform.
While you likely would prefer not to pay a fee, it’s important to only use trustworthy lending sites that have the infrastructure to help you, should anything go wrong.
Lending Crypto; Earning Interest
Of course, if you don’t need a loan, but have excess cash, you can become a lender. This way, you can lend money out with low risk, since the borrower’s cryptocurrency acts as collateral, should they default on the loan.
It can also become a lucrative income stream, as you can earn relatively high-interest rates on the loans. To learn more about getting started either as a borrower or a lender, check out these tips on Byte Federal.
Security for Crypto Loans
Because crypto lending is new, here are a few things to be aware of when considering a loan as a borrower or a lender. First off, it’s vital that you use a platform with a high level of security.
In the early ages of crypto lending, hacking attempts have been very common. It’s crucial to only work with reputable sites that have advanced security technology. Also, make sure they have a dedicated support team to help you in case any issues arise.
On top of hacks to the system, many people try to scam borrowers or lenders on these platforms. For those with an eye for scams, they can be pretty easy to spot and avoid.
Plus, cryptocurrencies themselves pose a host of risks. Sure, many currencies have been around for 10 years or more, and have insane market value. But the value can drop all the time.
Crypto is an extremely volatile market, making for high highs, and very low lows. Make sure you have the nerve to hang in there even when the market works against you.
Lending Crypto Benefits All
Cryptocurrency as a whole is still in its infancy. But if there’s anything we know, it’s that crypto has secured a place in global finance and will continue to grow in value and importance.
Sure, it feels like the wild west right now, but we can expect some degree of normalcy in the near future, even though it’s decentralized by design. And lending crypto is currently offering amazing opportunities to investors looking to earn interest.
It also might be the only type of loan that many borrowers could get in a pinch. Just make sure to research beforehand, and don’t accept the first offer that comes your way.
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