Bitcoin has gained popularity soon after being launched in 2009. It is a type of digital currency stored in the software in the form of computer codes. It has evolved into one of the best and high return cryptocurrencies where many people have shown interest in investing their hard-earned money.
Furthermore, there is another concept known as a bitcoin loan for people who have extra bitcoin assets in their possession. Nowadays, lenders and borrowers have started to prefer this method over traditional loans. If you also want to earn some extra income or are confused about how to utilize the bitcoins then a bitcoin loan may be the right option for you.
Before diving into the working of the bitcoin loan, let us first understand the meaning and benefits of the same.
- 1 Introduction to bitcoin loan
Introduction to bitcoin loan
Bitcoin loan is carried out by the borrowers, offering their bitcoins as collateral to the lenders for gaining money with an interest rate from them. Just like any other type of loan, bitcoin trade is also not free to avail. Therefore, you need to pay the initial amount along with the interest rate set by the lender according to the loan amount and value periodically.
Benefits of taking a bitcoin loan
Several reasons and benefits support the requirement to consider the bitcoin loan. Apart from financial gains, there are many other aspects that can make it worthwhile for every customer. Some of them are mentioned below-
If you are an investor and in need of instant cash then you may find a bitcoin loan quite appealing. It provides quick cash liquidity for emergency transactions. In addition, it is a great way to leverage your cryptocurrency and earn some extra cash in return.
These loans are very distinct from bank loans. Here the credibility of the borrower is not judged by some credit score rather by trust scores. If the trust value is high, then you are eligible for the application or vice versa. Thus, the loan can be sanctioned easily by the lender irrespective of the creditworthiness of the borrower.
No loss of crypto ownership
When it comes to crypto loans, you can simply meet your funding needs without losing bitcoin ownership. It allows you to lend your crypto as collateral to the lender to get cash against them. This is the best method for people who want to hold their bitcoins but also require instant money.
The Working of bitcoin loans
The process of crypto lending is quite simple to understand in a very few steps. These are-
Setting up a borrower account
To begin with crypto trading, it is essential for you to open a borrower account at an established bitcoin trading company or cryptocurrency exchange. At the time of sign up, remember to determine the fiat currency you need.
After addressing the required amount, connect with a lender and submit the necessary documents such as address proof, identity proof etc., for the KYC process.
Getting loan terms from your lender
When you are done with the amount requirements and document submission, the lender then reviews your application form. If he finds it valid, the loan terms will be sent to you within hours as a confirmation and acceptance of the same.
Sending the crypto collateral
Once you receive the terms and conditions form from the lender, it is your responsibility to review them. After agreeing on the same, you have to send the bitcoin to the lender’s custodian as a deposit.
Completion of these 4 steps lands you on the final procedure which is to receive money on the agreed currency.
Receiving the loan
When the lender receives the collateral bitcoin, then he wires the loan amount directly to your (borrower’s) bank account. Once this is done, the interest is levied which is to be paid periodically to avoid consequences.
Apart from being a borrower, you can also register yourself as a crypto lender. There are many websites such as WazirX, Zebpay, Coinbase, etc., where you can set up a lender or trading account and start with choosing borrowers to whom you want to lend your cryptos. Just remember to carefully screen the application process and check the trust score of the individual before sanctioning the loan.