Should You Borrow Against Crypto: Pros and Cons

Main Takeaways:

• With a crypto loan, you can quickly borrow funds with no credit score and lower interest fees. 

• Binance Loans is a crypto loans platform where users can easily borrow bitcoin and other popular cryptocurrencies.

• In this article, you’ll learn all about crypto loans, the pros and cons and how to borrow crypto on Binance Loans.

Learn all about cryptocurrency loans and whether you should borrow against crypto. 

Cryptocurrency, commonly known as crypto, is a digital currency secured with cryptography. Unlike traditional currencies, which banks and governments manage, cryptocurrencies are managed by their users on the blockchain, a decentralized ledger that tracks and verifies transactions. 

Bear in mind—this is a bare-bones, basic explanation of cryptocurrency. Beginners should start with our blockchain and crypto 101 for more in-depth learning material. For those who understand the fundamentals, keep reading to learn crypto loan basics, the pros and cons and how to get started. Here at Binance, we provide a simple crypto loans platform for users to borrow bitcoin and other popular cryptocurrencies. When you’re done reading this article, you’ll know if borrowing against crypto suits your needs. 

What is a Crypto Loan?

The fundamentals of crypto loans are pretty similar to traditional loans except for one key difference: accountability. Traditional loans use credit scores to calculate borrower risk, while crypto loans don’t require credit scores. Instead, lenders will hold a portion of your crypto assets as collateral until you repay the loan. 

Let’s take a closer look at how your typical crypto loan works. Since the crypto market is volatile and riskier for lenders and borrowers, crypto loan periods are shorter—ranging from seven to 180 days—and interest is calculated hourly instead of monthly. In the next section,  we’ll take a deeper dive into the pros and cons of borrowing crypto. 

Crypto Loan Pros and Cons

Are you still deciding on whether a crypto loan is suitable for you? We’ve outlined the complete list of pros and cons to help you make your decision.

Pros:

• Speed and flexibility: Borrowers can instantly collect their loans with more flexible repayment time. 

• Accessibility: Crypto loans are more accessible to underbanked populations, including people with little to no credit history, limited access to traditional institutions and self-employed workers who can’t meet conventional loan requirements. 

• Long-term consideration: Long-term crypto investors may run into situations where they need quick money for a business or investment opportunity. Instead of liquidating your assets, you can consider taking out a crypto loan. 

• Borrowers also get lower interest rates with a crypto-secured loan. 

Cons:

• Liquidation risk: If the value of your collateral falls below the requirements, you’ll need to add more liquidity; otherwise, your lender runs the risk of liquidation. 

• Loan-to-Value (LTV) Ratio: This ratio measures risk level by comparing the value of your loan against the market value of its collateral.

• Late repayment: Borrowers will get liquidated for late repayments and incur a liquidation fee. On Binance Loan, the fee is 2% of the total borrowed amount.

Why Borrow With Binance Loans

• Flexible terms: We provide 7, 14, 30, 90 and 180-day loan terms. Interest is calculated based on hours borrowed.

• Early repayment: Repay anytime before the due date with no penalty fees. Once you return the loan amount, we’ll only charge you an interest fee based on hours borrowed. 

• Use funds anywhere: Feel free to use your borrowed crypto anywhere on the Binance ecosystem, from trading to making payments. You can also withdraw if you want to use your funds outside Binance. 

• Loans staking: Some of our collateral options can also be staked to generate crypto rewards and reduce loan interest fees. 

How Does Binance Loans Work

If you’ve registered for a Binance account and completed identity verification, you’re ready to start borrowing on Binance Loans. Follow the instructions below on borrowing and repaying your first Binance Loan. 

How to borrow:

• Step 1: Decide which asset you want to borrow and which asset you’ll use as collateral. You can choose from a vast selection of popular cryptocurrencies like BTC, ETH, BUSD and more.

• Step 2: Select how long you want to borrow. Timeframes range from seven days to 180 days.

• Step 3: Our platform will automatically determine the hourly interest rate based on your collateral amount. 

• Step 4: Feel free to use your borrowed funds anywhere in or outside the Binance ecosystem!

How to repay:

• Step 1: Repay your loan via the Order Page. 

• Step 2: You’ll pay the interest fee first and then the principal amount.

• Please note: If you’re repaying early, interest will still be charged according to how long you borrowed (hours). You will not receive a penalty for repaying early.

Make Your First Binance Loan Today

Cryptocurrency loans are a simple and easy way to borrow extra funds. You don’t need a credit score, interest fees are lower and you can borrow up to 65% of your collateral value on Binance Loans. But remember, the crypto market is volatile, and loans come with their own set of risks. Before making a loan, ensure you have more than enough in your wallet or portfolio to cover interest fees, collateral and principal repayment. 

Read the following support items for more information:

• (Support) How to use Binance Loans?

• (Support) What are Binance Loans?

• (Blog) Crypto Loans: How to Borrow Cryptocurrencies?

• (Academy) Interest Rates Explained

• And many more Binance FAQ topics…