Bitcoin loans are a growing phenomenon…and for good reason. If you need cash to cover emergency or planned expenses, you’ll save money and your credit score by getting a good bitcoin loan.
The benefits are difficult to ignore when compared to a traditional loan:
A bitcoin loan can be instant vs. A traditional loan that can take days to process.
A bitcoin loan can have low fees vs. A traditional loan can have high fees and hidden fees.
A bitcoin loan doesn’t require a credit check vs. A traditional loan must check your credit.
If these pro’s weigh in your favor, then how can you get an instant bitcoin loan?
Do You Qualify for an Instant Bitcoin Loan?
The first thing most people wonder when they think about getting a loan is if they qualify. This is a kneejerk instant reaction for almost everyone because they’re coming from the world of traditional finance.
In traditional finance you get a loan if your credit score is high enough. The higher your credit score, the bigger your loan can be and the better the interest rate you’ll get.
So when people think about getting a bitcoin loan, they get caught up in worrying if they’ll qualify.
The good news is, and if you keep up with the latest in crypto financial news then you’ll know this already, you don’t need to have a good credit score to qualify for an instant bitcoin loan. In fact, you don’t need to have a credit score at all.
Bitcoin loans do not touch your credit score because they’re not based on it. Instead, they’re based on a system called DeFi — Decentralized Finance.
Forbes writes about DeFi by saying:
“It’s the notion that crypto entrepreneurs can recreate traditional financial instruments in a decentralized architecture.”
They go on to state: “The goal of DeFi is to reconstruct the banking system for the whole world in this open, permissionless way,” says Alex Pack, managing partner at Dragonfly Capital, a $100 million crypto fund. “You only get that shot every 50 years.”
A second definition of DeFi, this time from crypto exchange giant Binance, tell us:
“DeFi may be defined as the movement that promotes the use of decentralized networks and open source software to create multiple types of financial services and products. The idea is to develop and operate financial DApps on top of a transparent and trustless framework, such as permissionless blockchains and other peer-to-peer (P2P) protocols.”
In short, these definitions tell us that your bitcoin loan application is not secured by some magical credit score number but instead by smart contracts that secure your loan, manage your payments and interest, and return your collateral when you’re done paying.
Yes, I said collateral.
The biggest difference between traditional loans and instant bitcoin loans is how they’re secured. Traditional loans are secured not just by your credit score number but also by the agreement that if you fail to pay — the banks will pursue and sue you to recoup their loan amount, interest, origination fees, and anything else they wish to tie to the loan.
With a bitcoin loan you instead put up collateral. Then, if you default on your loan, your collateral may be sold on the market to pay back the DeFi company who gave you the loan. No other origination fees or other tacked on fees (unless they put some in your user agreement).
So all you need to qualify for a bitcoin loan is the ability to put up enough collateral to secure it.
What kind of collateral is accepted? Generally: Bitcoin, Ethereum, USDT, and other stablecoins…sometimes other alt coins too.
How Much Collateral Do You Need for an Instant Bitcoin Loan?
The answer depends not only on the DeFi platform but also upon your risk tolerance.
Most DeFi platforms will require collateral that is double the amount you’re borrowing. That way, if your collateral sinks in value (for example, if Bitcoin sinks by 50%), then your collateral will be sold off to make sure the loan is paid off.
Some DeFi platforms will let you put in less collateral, but then your risk tolerance should be greater because if your collateralized coin sinks by that smaller amount (40% or 30%), then it could be sold off to pay for the loan.
You could also put in more than the required collateral and therefore weather any storms of price volatility that may occur.
Other factors to consider are:
- Which coin do you want to put up as collateral? Some coins, like Bitcoin, are more stable than other alt coins. This helps keep your risk tolerance lower.
- How do you want to be paid? Some DeFi platforms will give you loans in Bitcoin or another crypto while others will transfer fiat money straight to your bank account.
These factors all play a role in which DeFi platform you should choose. So head back up to the top of this article and follow the link for a comprehensive review of the top bitcoin loan platforms today.