Best Platforms for Crypto Loans: a Comparison
When crypto and the blockchain were created, few people could have predicted what impact these new technologies would have on everyday life. One industry that has been changed forever in the eyes of ordinary people is the way we lend and borrow money.
Before blockchain became a thing, banks and traditional financial institutions had been the only organizations to turn to if you needed to take out a loan. But with the advancement of decentralized finance, cryptocurrency lending platforms enabled digital coin holders to receive loans by using their assets as collateral. Thus, those who believe in a future dominated by crypto have the opportunity to get liquidity in cash or stablecoins without being forced to sell their valuable cryptocurrencies. Crypto lending platforms offer quicker and more convenient access to funds, but they have so much more up their sleeve.
What Are Crypto Loans and What Makes Them So Special?
Crypto loans are available through unique lending platforms and cryptocurrency exchanges. For example, in traditional finance, if you own a house or other type of property, you can request a mortgage loan by offering your real estate as collateral. Thus, your home becomes a guarantee that you will pay back what you owe. Crypto loans work similarly. Instead of immovable assets, you provide cryptocurrencies to borrow money.
This raises the logical question: Why not sell your digital coins and receive liquid funds instead of taking out a loan?
Well, if you expect that the value of your holdings will increase significantly in the future, you wouldn’t be interested in selling those assets. So, when you decide to re-buy Bitcoin or any other coins at one point in the future, you will get much smaller quantities for the same amount in fiat.
Another point worth mentioning is taxes. More precisely, capital gains taxes for short-term holdings. Tax laws in many countries offer much more favorable rates for long-term holders. In addition to that, if cryptocurrencies are exchanged for fiat or different digital assets, those transactions create taxable events. With crypto loans, that is not the case.
When a coin is used as collateral, you still remain the rightful owner of said asset. Of course, you can’t trade it or send it somewhere else, but the collateralized value will be returned to you as soon as you close the loan.
The Advantages of Crypto Lending Over Regular Loans
There are several reasons people might consider taking out a crypto loan:
Affordable interest rates – Compared to standard bank loans, crypto lending offers lower interest rates (APR). These fees are often between 5 and 10 percent, but they can be as little as 1% or even lower in some cases.
Multiple currencies to choose from – Lending platforms offer their customers a selection of stablecoins and popular cryptocurrencies to suit their needs.
No credit history checks – Traditional financial institutions perform credit checks before determining if a client is fit to receive a loan. When you borrow funds from a crypto platform, no such security checks are carried out, and everyone with enough collateral can obtain a loan.
Fast user acceptance – The loaned funds are, in some cases, made available as soon as the deposited collateral is confirmed on the blockchain. No reputable crypto lending platform will make you wait for days and weeks.
High loan amounts – Some lending services have no maximum limits when it comes to borrowed assets. Depending on the brand, you can receive a loan amounting to 50% and even 90% of your collateral’s value.
The Two Different Types of Crypto Loans
There are basically two kinds of crypto lending platforms: Custodial (CeFi) and Non-Custodial (DeFi) loans.
With this type of lending, the customer loses ownership rights of his crypto for the whole loan duration. The coins are sent to an address controlled by a centralized authority. They will be returned after the loan conditions have been met. CeFi platforms are more popular than non-custodial ones, and it’s believed that around 80% of all crypto loans are centralized in nature.
Non-custodial loans don’t require the borrower to lose access rights to his collateral. This type of lending is based on smart contracts where the customer remains the sole owner of the addresses’ private key. In addition to that, the APY rates are usually somewhat higher with DeFi compared to CeFi loans.
Crucial Things to Remember Regarding Crypto Loans
Before you decide to take out a crypto loan, you should understand the basics of how lending platforms operate and what risks are associated with them.
The value of your collateral determines the size of the loan. With crypto loans, you need to consider the LTV ratio. LTV stands for Loan-To-Value, and it’s usually indicated in a percentage. For example, suppose the LTV rate is 50%, and you place collateral of $100.000 worth of Bitcoin. In that case, the platform or exchange will lend you $50.000 worth of cryptocurrencies of your choice. Due to the volatility of the crypto market, LTV rates have to be low to prevent liquidations.
As is the case with all crypto activities, several technical problems could have a negative impact on the lending ecosystem as well. Hacking, exit scams, code vulnerabilities, and website malfunctions represent some of these risks. In addition to that, lending platforms rarely insure the deposited assets. CeFi platforms are more susceptible to the mentioned dangers since they keep user funds pooled together in their own wallets.
All collateralized assets have a liquidation price. If the collateral value drops below a specific point, the platform could be forced to liquidate all or parts of the deposited funds. The client could also be asked to increase the underlying deposit. Failure to do so would result in the liquidation of your assets. This creates taxable events and additional expenditures.
Each crypto lending platform charges its clients interest. The amounts depend on the brand and can start as low as 1% and go up to 10% or even 15%. Interest is also called Annual Percentage Rate (APR). If your jurisdiction allows it, these fees can be annulled in the following tax report.
NOWLoans, A Crypto Lending Platform by ChangeNOW
NOWLoans is a cryptocurrency lending service available for all users worldwide. The platform allows you to deposit dozens of different crypto assets as collateral to take out a loan in stablecoins. It’s also possible to borrow Bitcoin in exchange for dollar-pegged currencies.
With NOWLoans, there are no minimum or maximum loan periods. You can close your contract in an hour or keep the borrowed assets for several years if you prefer. In addition, no monthly interests are required to be paid until the loan is closed and you want your collateral back. ChangeNOW’s crypto loans come with fixed annual percentage rates of 10% (APR) and loan-to-value rates of 50%.
A loan calculator is available on the site to show the client how much interest they will need to pay and how valuable the collateral is. Then, when you have gotten the most out of your money, you can end the loan anytime by returning the indicated amount.
NOWLoans is a premium lending platform that enables you to profit in bull markets and bear markets. There are no upper limits, and you are free to loan how much you want. Just pay attention to your collateral’s liquidation level to avoid premature liquidation of funds. Luckily, ChangeNOW offers a superb notification service, which will inform you if your assets are getting closer to the point of being voided.
A Comparison of Crypto Lending Platforms
Before selecting a service for your crypto loans, it’s essential to consider what the best platforms offer their customers. Let’s take a look at some stats:
|Name||LTV||APR||Min. Amount||Max. Amount||Min. Loan Period||Max. Loan Period|
|Oasis Borrow||50% and 75%||0.5% - 8%||$10.000||No limits||No limits||No limits|
|NOWLoans||50%||10%||$100||No limits||No limits||No limits|
|Compound||50% to 70%||2.3% - 16%||No limits||No limits||No limits||No limits|
|Aave||40% - 80%||0.2% - 18%||No limits||No limits||No limits||No limits|
|Alchemix||50%||8.7%||No limits||No limits||No limits||No limits|
|Celsius||25% - 50%||1% - 8.95%||$500||No limits||No limits||3 years|
|Nexo||15% - 90%||6.9% - 13.9%||$50||$2,000,000||No limits||1 year (extendable)|
|Unchained Capital||40%||11% - 14%||$10,000||$1.000,000||3 months||3 years|
|BlockFi||20%, 35%, and 50%||4.5%, 7.9%, and 9,75%||$10,000||$100,000,000||No limits||1 year|
- As we can see from the table above, Aave and Nexo offer their clients the best loan-to-value rates.
- The crypto lending platforms Oasis Borrow and Aave have the lowest APRs in terms of annual interest ratios.
- Nexo and NOWLoans have come on the top for borrowers who are looking for a small loan.
- Most lending services have no maximum amounts. However, the borrowing limit on Unchained Capital is capped at $1.000,000.
- NOWLoans, Compound, and many others set no limits for when the loan contract has to be closed, but Nexo and BlockFi offer 1-year loans by default.
Crypto loans represent a fantastic opportunity to borrow money without having to sell and lose your portfolio of digital currencies. They require no paperwork, background, or credit checks, and your loan is ready as soon as your collateral is deposited. In addition, by using the services of a lending platform, the client doesn’t create taxable liabilities, as is the case when cryptocurrencies are sold for fiat or exchanged for other coins.
Many service providers set no limits to the minimum or maximum amounts that can be loaned. This makes crypto lending attractive both to clients with deep pockets and those who lack significant financial resources. Finally, the yearly interest rates are lower than with personal bank loans, and you can customize the loan period that best suits your needs.
Depending on the service used, two things can happen:
- You will hand over the ownership of your assets to the lending platform for the duration of your loan (custodial crypto loans).
- You will remain in possession of your collateral by interacting with smart contracts (non-custodial crypto loans).
Whatever you decide to do, ensure that you are familiar with the terms & conditions of the site and that you understand the risks associated with crypto asset liquidations.