What is a Bitcoin Loan?

So you've invested in Bitcoin. You want to hold on to that investment and have no interest in selling, but you also need liquid assets for a down payment on a new home, a nice vacation, or a new car.

No need to worry! By taking out a Bitcoin loan, you can avoid selling your Bitcoin while still using it to finance your current needs.

Read on to learn how Bitcoin loans work and how you can get one to finance your next home, car, or trip.

What Is a Bitcoin Loan?

In basic theory, a cryptocurrency loan works just like any other kind of loan. A lender offers money to a borrower, which the borrower then repays with interest.

In practice, the anonymity and decentralization of cryptocurrency make Bitcoin loans slightly different than loans with fiat currency like the US dollar. Since there are no large banks for Bitcoin, Bitcoin loans typically occur between two private individuals. It would be difficult to establish trust and connection for loans without some help though.

This is where Bitcoin lending platforms come in. Platforms connect Bitcoin lenders to borrowers, facilitating these peer to peer transactions. Some platforms are more involved in the loan process than others.

With these more involved, centralized (or CeFi) platforms, like Nexo or BlockFi, the platform typically determines the interest rate. This will often be based on the individual borrower's creditworthiness. Lenders can then choose which loans they want to finance.

Centralized platforms are also secure and regulated. This is where the Bitcoin-backed nature of the loan comes in. You will be asked to put down a certain amount of Bitcoin, determined by the loan-to-value ratio of your loan.

When you pay back your loan with interest, all of your Bitcoin, including any value it gained during the time the investment platform was holding it as collateral, will be returned to you.

Benefits of Bitcoin Loans

Bitcoin loans have many additional benefits aside from allowing you to use your Bitcoin as a fiat currency without selling it. If you live in the US, funding a Bitcoin loan is not taxable, unlike many other methods of liquifying your assets.

It is also easier for borrowers and lenders from different countries to work together, as international transfer fees are not a concern. Bank accounts are not a concern at all in a bitcoin-to-bitcoin loan, allowing people without bank accounts to take out loans.

Risks like lack of regulation and volatility are largely mitigated when using a platform that requires collateral.

How to Get a Bitcoin Loan

If you're ready to get a Bitcoin loan, you might find the variety of platforms and different loan offers overwhelming. To find a loan that allows you the freedom to pay for what you want now without selling your valuable Bitcoin, check out our website for an in-depth comparison of all the Bitcoin lending services.