Crypto Loans: How Do They Compare to Traditional Loans?

If you have ever wondered what this feature is all about, then you are in the right place. Read on to know more about the world of Crypto loans, what to look out for, and the advantages of a crypto loan over a traditional - bank financed loan.

Crypto loans function the same way many traditional bank loans do. They lend the money to the customer (Provided they are eligible) and agree on a period of repayment and interest. For Crypto traders, they use their Crypto holdings as collateral, just like you would use, property, stocks, or other assets through any bank.

Collateral assures the lender that they will not lose their investments in case the customer defaults. But how does this work when the collateral is of fluctuating value, especially one as volatile as crypto? Platforms use a threshold called “liquidation price.”

Liquidation Price

A liquation price is set during the time of borrowing. This is the rate at which the trader's position is automatically closed to prevent it from falling below a specified price. In this event, the loan is closed, and the borrowed assets are sold. This protects the platform and the user from excessive market volatility.

For example, when a collateral of 100 tokens is placed at a value of 2$ each with the liquidation price fixed at 1$ - the borrower gets 100$. In the event, the price falls below 1$ all holdings will be sold and the loan considered repaid.

Why Crypto Loans

Crypto Loaning is a way for investors to gain fluid capital on their assets without selling them. This system works for users who need short-term access to cash, with low-interest rates and flexible repayment schemes. This way you can still hold onto your coins at the position you got them and have them earn for you simultaneously.

Advantages of Loaning Crypto vs Traditional Loans

As opposed to traditional loans backed by banks and financial agencies - crypto loans are easier and quicker to obtain. You don't have to deal with lengthy paperwork or approval processes. An added benefit of crypto loans is that the rates of interest and amortization have nothing to do with your credit score.

Traditional loans, take times to process, are expensive to obtain, and charge more interest. Unlike most crypto loans, the amortization period is fixed by the bank.

Important to know:

Loan to Value Ratio (LTV) - Simply put, it is the ratio of the money being borrowed to the asset value of the collateral. If an asset of 100$ is offered for a loan of 80$ the LTV would be 80%

It should be noted that the higher the LTV the higher the liquidation price will be - hence riskier.

Interest Rates - while interest rates are lower than traditional banks, each trading platform offers its own interest rates.
Protection - An important, yet under looked area of focus is the protection of your holdings. Remember, you are not just gaining money, you are placing assets of a higher value into the hands of these platforms. Always conduct a thorough check of your platforms to ascertain their trustworthiness.

When it comes to choosing your Loan provider, you will need a platform that offers flexibility and stability. Among the leaders of Crypto trading platforms, LYOTRADE offers loaning of over 170 tokes and offers stable coins as collateral, multiple LTVs, and a flexible loan period.

LYOTRADE also goes through the following steps to make your crypto journey worry-free.

Supports a special wallet with private keys.
Keys can be accessed with a limited number of IP addresses through a VPN service.
Risk control systems check wallet balances every second and private keys are renewed every month.

Find out more on how to make crypto loans work for you by visiting the links below.
LYOTRADE

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