Benefits of Crypto Loans to Borrowers and Lenders

Lenders offer fiat money against crypto assets as collateral. It means in exchange for Ether, Bitcoin or Litecoin as collateral you can borrow USD currency. Crypto-backed loans are an efficient and cost-effective way of managing your cryptocurrency portfolio when you need money to fund other projects.

What can you use crypto-backed loans for?

Crypto loans can be applied in several ways.

  • Go on vacation or pay off travel expenses.
  • Invest in real estate.
  • Fund a new business project.
  • Diversify your portfolio.
  • Refinance debt.
  • Investors can use a crypto asset loan and pay less interest because the transaction tax gets eliminated because you are borrowing and not selling an asset.

Crypto-backed loans concerning taxation

Well-Defined guidance is unavailable for crypto-backed loans but you can compare it with traditional lending terms regarding taxation.

  • For tax liability, virtual currencies need to be considered as property. Property used against collateral is not considered saleable. Therefore, borrowing against crypto assets will not activate capital gain taxes.
  • The loan purpose will define whether the interest to be paid is tax-deductible or not. For example, loans for the purchase of property or commercial purposes are tax-deductible. Loans for personal use are not considered tax-deductible.

The crypto-backed loan borrowing process

The lenders and borrowers reveal their needs and join together in a transaction, where borrower deposits crypto assets and lender transfers fiat money. A loan of 60% to 70% of existing market value gets approved and the interest rate is a factor of mutual agreement. On completion of duration, the borrower will repay the principal loan amount including interest and the lender will return the total crypto-collateral.

What are the benefits of a crypto-backed loan?

From lenders perspective:

  • As there is an assurance of total fund repayments including interest, the risks get reduced. As the system is automated and exchange occurs directly to a bank account makes it easy to monitor funds usage.
  • Even foreign borrowers can gain access to crypto-backed loans as it is decentralized.
  • The minimum loan amounts up to $100 and the maximum amount is determined on the borrower’s budget and collateral they can offer.
  • The infrastructure is robust and ensures total fund security.
  • Any legal entity or individual can lend without any license.

From borrower’s viewpoint:

  • No mandatory need like credit history checks and payment capacity proof.
  • Loans can be withdrawn via bank transfer or bank cards.
  • The terms and conditions of lending are flexible. It can easily be optimized for both the lender and the borrower.
  • Loan collateral options are several including Litecoin, Bitcoin, Ethereum, etc.
  • Borrowers can preserve their crypto assets because there is no need to sell them when fiat currency is needed.

How does the crypto-backed loan process work?

The loan application gets reviewed by the lender and they revert back to the borrowers in a couple of days with a loan offer. Some elements of the offer include –

  • Interest rate, generally 8%.
  • Origination fee, usually 1% to 2%.
  • Annual percentage rate [APR].
  • Crypto-collateral essential details for wagering on a loan claim.

Crypto-backed loans are regarded as the future of lending!

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