Emily Clarke

Can You Take Out Crypto Loans?

Interest in UK crypto loans is higher than ever. While most people are familiar with the concept of cryptocurrency investment, many don't realize all the things you can do with crypto assets. If you need a loan, it's possible to get one using your virtual currency as collateral.

How Do Crypto Loans Work?

Crypto loans work similarly to traditional collateral loans. With a collateral loan agreement, you use something you own to secure the borrowed amount. For example, you might use your car or home to guarantee the loan. If you default on the loan terms by not making payments, the lender can take the collateral.

The same applies to crypto loans. But instead of using a tangible object, you use your virtual assets. Lenders will secure your loan using your crypto holdings as collateral. In exchange, you get liquid assets. Like a traditional secure loan, lenders can repossess your crypto holdings if you don't repay your loan.

How Much Can You Borrow?

The loan size depends on how much crypto you're willing to put as collateral. Typically, lenders that provide UK crypto loans will offer a specific percentage of the value of assets you pledge. It's never 100 percent of the collateral because lenders need the added value to recoup costs should you default. In most cases, lenders will offer anywhere between 50 and 90 per cent of the collateral's value.

Types of Crypto Loans

There are a couple of different types of crypto loans.

The first is centralized finance (CeFi). CeFi crypto loans are the most common because they allow lenders to hold collateral assets for depositors. During the terms of your loan, they have full control over the collateral per the agreement.

Decentralized finance (DeFi) loans are different. Instead of getting a loan through a traditional lender, you borrow from a blockchain application. Furthermore, you still retain control of your assets. Lenders still can repossess if you default, but you don't have to hand your cryptocurrency over for lender holding in the meantime.

Author Resource:-

Emily Clarke writes about portfolio management, finance tracking and Consumer SaaS services. You can find her thoughts at crypto wallets blog.