What Are Cryptocurrency Loans and How Do They Work – 2024 Guide

Digital money is a term that most people are familiar with, yet, many still don’t know much about what it stands for, what they can expect, and, in the end, how to make profits while trading cryptocurrency. Yes, exchange platforms can seem confusing for those who don’t know how they operate, but still, many of them provide chatbots, tips, advice, and guidance, and just because something may seem confusing is not enough reason to further delay your crypto journey. From the very first moment that Bitcoin started, everything changed, and the financial system overall, along with governments, still hasn’t found a way to deal with it. As you may already know, the banks were responsible for printing and issuing money, but cryptocurrency change all that, and now, banks cannot overlook these transactions, meaning that we have full control over our monetary assets, and as for the transactions, they are much faster.

Making profits is what investing is all about, and the same is with cryptos, and although they are highly volatile, they still represent one of the best ways to earn cash, no matter if it is a long-term investment or a short one. That’s what makes digital money so unique, but for someone to actually make high profits, they need to follow the latest market changes and keep up with the flow of information since timing is the most important thing. For a little more than a decade, people from all around the world are enjoying the benefits of cryptos, which are vast, but certain topics like halving or crypto loans still confuse them. That is why we will now further discuss cryptocurrency loans, what they are and how do they work, so lets’ start.

Source: Coingape

What are crypto loans?

For many people, cryptocurrencies are still something that they are not absolutely familiar with, and because the fact that this industry is improving all the time, some new terms can be a little confusing for them. One of these terms is crypto lending since many people think that it is something that they cannot understand and learn, but the truth is different. It is a process similar to any other lending, and it means loaning the crypto to someone or from someone. To explain it better, that means borrowing cryptos and agreeing on repayments with the lender. Crypto lending has positive sides for both lender and borrower, and it can be a good way for the borrower to survive on the market without selling cryptos. On the other side, the lenders get their money back after a certain time, and they are also turning a profit on their investments thanks to interest rates. Since these currencies are very volatile, their loans must be overcollateralized to protect lenders and save them from losing their money because of the lower price at the moment of returning. It is not something that borrowers love, but high volatility is the main reason for that.

Source: SelfKey

How do they work?

Now when we know more about what they are, we can take a closer look at what kind of crypto loans there are. The answer to this question is quite simple, and there are two most common types:

  • with collateral
  • without collateral

Depending on the amount you want to lend, you will be able to choose one of these two loans, but what you should know about non-collateral ones is that they provide short-term liquidity. Another significant thing to mention about unsecured cryptocurrency loans is that one can pay them back either via cryptos or traditional fiat currencies.

The main difference between these two types of loans is whether you will offer cryptos or some other assets like gold or property as collateral. Of course, if one chooses to go with cryptos as collateral, they should always do some research because even though many platforms offer these flash loans, one can never be too safe when it comes to the money. That is why choosing a trustworthy website with a high number of satisfied customers like YouHodler is always the best option, as you will get the loan you need fast, and you will also get advice on how, where, and when to invest that loan so that you end up earning much more than you invested in the first place.

Source: CoinTracker

Their benefits

These loans have a lot of benefits for both lenders and borrowers, and we mentioned the most important ones before, but we will now introduce the others too. It is not necessary to have a flawless financial history or stable earnings in order to be a good candidate for this loan. That is perfect for those who are self-employed or have bank accounts that are not suitable for credit. Better said, it is not necessary to have a bank account at all, and the only necessary thing is a crypto wallet that can be empty since no one will check it. These transactions are almost instant, so there is no need to wait and check the account every few minutes to see if the funds appeared on it. That is perfect for busy people who need their funds rapidly and do not have time to wait. Another great thing is the possibility to switch between different crypto assets, which means the option of depositing one and borrowing the other currency on the same platform. Besides all these benefits, it is also possible to create a loan that suits the needs of the borrower and agree on the repayments to make the whole process more pleasant for both sides.

Source: Medium

Final thoughts

Digital money is with us for quite some time now, and it has a bright future, so it is expected that it will have even bigger usage in the future. Because of that, it is necessary to learn more about it and give cryptos the chance to show that using them is not that complicated as it looks. Once we learn to use them, we might be surprised how simpler it can be than using fiat money all the time.