Pros And Cons of Bitcoin Loans
Bitcoin loans could be the killer app that cryptocurrency enthusiasts have been searching for. After all, bitcoin loans let borrowers get their loans fast without any credit checks while also allowing bitcoin loan lenders to make solid ROI.
But are Bitcoin loans all they’re cracked up to be?
Let’s take the old Pro/Con approach to find out.
Pros of Bitcoin Loans
1. Borrowers don’t need to go through credit checks.
For people with credit scores that aren’t the best, a bitcoin loan is a godsend. They don’t need to worry about their credit report ruining their chances or spiking their interest rates.
For people with great credit scores a bitcoin loan is still a plus because they don’t need to wait for the results to come back or worry that checking their credit might take it down by a couple points.
2. Lenders can earn while HODL-ing
Cryptocurrency enthusiasts love the term HODL, which stands for Hold On For Dear Life. It originated back in 2013 on a Bitcoin forum. Since then enthusiasts have held onto their stash of BTC and altcoins no matter if the market price goes up, down, or sideways.
But why just hold onto your coins as they gather dust? Why not make money from them?
Bitcoin loan sites let people deposit their coins and earn interest from them. The interest can range from 4% APY to as much as 12% APY, and more in some cases for certain coins.
Cons of Bitcoin Loans
1. DeFi is new and not thoroughly tested
DeFi stands for Decentralized Finance. It’s all about securing and writing contracts without the need for centralized middlemen. But it’s also very new.
On April 19th, 2020, for example, the DeFi bitcoin loan lending platform dForce had $25 million of customer funds hacked and stolen within three hours. That’s scary.
Granted, dForce was a brand new company and didn’t have nearly the security and features that larger bitcoin loan sites have. But still, it shows that vulnerabilities exist.
2. You must put up collateral
The reason regular loans access your credit score is that they don’t require collateral. If you’re getting a loan for something big like a car, then yes the car is collateral. But generally you don’t need money to get a regular loan, just a decent credit score.
Bitcoin loans require borrowers to put up collateral. Typically the collateral is double the loan value. So if you want to borrow $1000 then you need to put up $2000 in collateral. Then, after you’ve paid your loan off you can just get your collateral back.
This mechanism is in place so that if the borrower defaults on their loan, or crypto prices sink 50% or more, then the lender (another individual instead of a big bank) can still recover their money.
Bitcoin Loans: A great alternative.
Perhaps someday when DeFi has great security and all the problems have been worked out, then it’ll take over traditional banks. here: https://cryptohead.io/
Until then, it’s a fantastic alternative for HODLers to earn a little extra revenue and borrowers to get access to quick loans.
So if you’re interested check out more great articles on how to borrow bitcoin.