I love reading quora Q n A; it provides you an insight into the possible scenarios a customer could think of. Recently I stumbled upon a query — Is it possible to get loans through cryptocurrency? Reading, absorbing the answers I found another scenario on quora that says — Should I take out a loan to invest in cryptocurrencies? The majority of the people have answered with a big NO as incurring debt without assurance on the return of investment is not a safe game. That made me think does a blend exist between the cryptocurrencies and traditional loans [like household debts, small business loans], or is there a difference between the crypto loans and conventional loans? Is cryptocurrency better than traditional loans? Are crypto loans a safe investment strategy? Or an individual should prefer traditional loans? Our post on Nuo.Network is dedicated to answering many such queries. Let’s get started –
What Crypto Loans Have to Offer over Traditional loans?
In a traditional system where banks or financial institutions or even local pawn shops provide you with a loan against collateral like land, gold, house, etc., with an agreed interest rate to be paid by the bearer. Here banks are the trusted parties that verify the collateral and identity of a person availing loan so that it does not lead to a loss to the bank/FI’s/individuals.
However, in the crypto world, the tagline is Borrow Fiat/Crypto, Keep your crypto, i.e. where borrower keeps his cryptocurrency as collateral and borrow Fiat or other cryptocurrencies. The Lender and borrower are directly dealing with each other, and there is no third party like ‘Bank.’
Crypto-backed loans offer following advantages –
Negligible Transaction Fees
Under the P2P lending process, when a borrower initiates the loan request, it goes to a bank/financial institution that charges you fees for processing, documentation, or early payment charges that were most applicable to the borrower. If we refer to Processing charges by Banks in India, it could go up to 20000 INR, on the other hand, crypto-backed loans do not have any processing or transaction charges. Only if you are using the platform [like Nexo, Nuo Bank, Ethlend, etc.], they might be charging you with a small amount. So crypto-backed loans come with a value of money when compared to traditional loans
No Paper Work or Need of Bank Accounts
While opting for Crypto-to-Cash loan, you may need a bank account, but otherwise, there is no need for any paperwork or bank account while picking a crypto-backed loan. It also helps in targeting the individuals at the lower level of the pyramid, which is unbanked and cannot provide the required KYC documents.
No Boundaries, Loans Diversified
Traditional lending mostly regulated have their work boundaries defined; however, crypto-backed loans could open gateways to cross-border debt, offering diversification to both lenders and borrowers. Crypto-backed loans provide an opportunity to the lending community to diversify their portfolio across different continents and countries. While lenders can take advantage of cross-country diversification, borrowers get a global pool of lenders. A win-win for both.
Credit Score not of relevance
In the Traditional debt market, significant balances across your credit cards can strain your credit score. If you have been delaying the unsettled amount of your credit card, there is a high probability of hurting your credit score.
However, for crypto-backed loans, this rating is not of importance. If you have cryptocurrency that could be served as collateral, you can get a loan in fiat/crypto.
Crypto Lending Platform is operational 24*7
Yes, thanks to the nature of the services, the lending platform is operational 24*7. Most of the platform connects the lenders and borrowers from across the globe, making them operational 24*7. Unlike loans offered by banks or NBFC’s in the countries, the crypto lending market is a digitized platform where individuals could register from any part of the world.
Where Can I use Crypto Loans?
Crypto loans could be used similarly as individuals have been using traditional financing options like Auto Loans, Personal loans, Education loans or Home loans. Let’s pick some example –
Clear your Credit Card Unsettled balance
You can use crypto-to-fiat loans and pay-off a credit card balance you have been carrying on.
Enter into Margin Trade
Let’s pick an example on how to trade Ethereum with Leverage.
1. You have one of the cryptocurrency to be used as margin collateral — Bitcoin, Litecoin, Dash, Monero, Ripple, Zcash or Ether
2. You can trade ETHBTC, ETHUSD, ETCBTC, & ETCUSD Markets.
3. Long or Short Ethereum with up to 3.33x Leverage
Get Governance Rights for Borrowed crypto
Individuals can borrow specific crypto assets to get governance rights on the blockchain of their choice. For example, one can borrow ZRX to vote for protocol upgrades and implementations on the 0x chain.
Buy a Home/ Fund your business
How about the crypto-to-USD loan for funding your dream home without selling your cryptos? Crypto-backed loans allow you to keep the ownership of the crypto assets while still able to finance project like supporting your start-up idea or paying for your dream home.
Save on Taxes
One can limit its tax exposure with crypto-backed loans. Let’s pick an example –
If you have been an active participant in crypto trading and owe money due to capital gain, crypto-backed loans could offer you some respite. So say in the year 2019
You purchased 200 ETH for $100, and you sell 100ETH for $200 in the same year. Assuming you fall under 50% tax bracket, you need to pay $5000 in capital tax gain [ 100ETH SOLD *$100 * .50 tax]
Now you can use the remaining 100 ETH to take a loan and fund your taxes, while also owning the cryptos.
With the last few months being gloomy for cryptocurrencies, following the HODler strategy could be the best option and crypto-backed loans could benefit the crypto investors with passive income. Nuo. The network could assist you in availing crypto-backed loans in 3-easy steps.
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