Best Crypto Loan Rates to Borrow Against Crypto in 2022
There are tons of uses for crypto tokens and crypto-specific technologies, but one of the most intriguing is crypto borrowing. This type of loan offers crypto enthusiasts the ability to take out a loan against the top cryptocurrencies at any time — and it happens in an entirely permissionless fashion.
Borrowers who take advantage of what the crypto lending space has to offer can use the borrowed tokens for a wide variety of purposes, including trading. What’s more is that borrowers also have the option to borrow fiat currency, which is regular dollar currency, by using your crypto as collateral. That way you can access fiat without having to sell your tokens. And, with the help of smart contracts, borrowers are able to lock collateral to protect against defaults while seamlessly adding to or closing their loans at any time.
While crypto lending can have big benefits for borrowers, it’s important to understand the nuances of how this type of lending landscape works.
By understanding how decentralized lending functions, and what the benefits may be for borrowers — as well as what the top crypto borrowing platforms are — crypto users can make educated decisions on how to navigate this unique part of the market.
Key points
- Crypto borrowing takes place on an exchange utilizing blockchain technology, which makes them safer and more secure.
- Any crypto user can quickly and easily take out a loan — and they won’t have to disclose who they are to a third party.
- With crypto loans, there is no need to transfer ownership of the user’s underlying collateral.
What is a crypto loan?
A crypto loan is a type of cryptocurrency-backed loan that allows you to borrow using digital currency, like Bitcoin, Ethereum, or another type of coin or token, as collateral. In general, crypto loans are similar to other types of loans offered by traditional lenders. The main difference is that rather than borrowing cold, hard cash, you can borrow either fiat currency or crypto tokens temporarily for trading or other purposes. This allows you to retain your tokens while accessing the crypto assets you need in order to complete other types of transactions.
As with traditional loans, you pay interest on what you borrow in return. Unlike traditional lending, however, it’s not the exchanges that are doing the lending. The exchanges or platforms simply act as the middleman to facilitate the loans. The lenders are actually other crypto users who offer their tokens to other users for borrowing purposes.
What are the crypto loan options?
Borrowers typically have a few different options when borrowing on crypto platforms. These include:
- Crypto-to-crypto loans: These loans allow you to use crypto as collateral to borrow another type of cryptocurrency. For example, you can use your Bitcoin as collateral to borrow Ethereum if you need it for trading or staking. That allows you to retain your Bitcoin if the price is down or if you want to hold it for a longer period while gaining access to the Ethereum you need.
- Crypto-to-fiat loans: Another unique type of loan is a crypto-to-fiat loan. This type of loan allows borrowers to access cold, hard cash (fiat) in return for using their crypto as collateral. This can be useful for many different purposes, as there typically aren’t restrictions on how you use the fiat you borrowed against your crypto. The possibilities are endless.
- Fiat-to-crypto loans: You can also use your fiat, or cash, to borrow cryptocurrency. Rather than using crypto as collateral, you’d use cash. Otherwise, this type of loan works just like the other types of loans listed above.
The type of crypto loan that works best for you will depend entirely on your goals for the funds you’re borrowing. If you need access to cash for a bill, a purchase, or something similar, it makes sense to use a crypto-to-fiat loan. On the other hand, if you need crypto to trade or stake, it may make more sense to use a crypto-to-crypto loan instead.
What do I need in order to get a crypto loan?
The requirements for crypto loans will vary by platform or exchange, but in general, you need two things to get started: the tokens you want to offer as collateral for the loan and a wallet, like MetaMask or Trust Wallet, to hold your tokens or log onto certain platforms.
Depending on the type of lending platform you choose, you may also need to create an account and get verified through the platform’s Know Your Customer process in order to take out a crypto loan. Centralized finance platforms are required to verify the users who open accounts, but decentralized platforms also offer crypto loans and do not require any verification.
What are the risks for crypto loans?
There is always a risk when it comes to investing, and crypto loans are no different. When it comes to crypto lending, the common risks include:
- Market fluctuation: The crypto market moves quickly and so do the values of the tokens and coins. If you’re putting up crypto as collateral and the value of the token drops during the loan term, you won’t be able to access the tokens to sell them. As such, you may face losses in value when you recoup your collateral after the loan is repaid.
- Platform insolvency: If you are borrowing crypto from an exchange, your collateral will be stored with the exchange until your loan is repaid. Should the platform become insolvent, you could run the risk of losing your tokens for good.
- Cyber attacks: Hacking and other security issues are common in the crypto space, and when you’re handing over temporary custody of your tokens to a crypto exchange as collateral for a loan, any cyber attacks that occur could put your assets at risk.
- Smart contract failures: Smart contracts are used as part of the crypto lending process, and they are not legally binding contracts. If a failure occurs, it could cause some serious issues for both the borrower and the lender.
- Not FDIC insured: Another thing to consider is that crypto lending platforms are not insured in the same capacity as traditional lenders. That too could put the parties involved in a crypto loan at risk, should there be an issue that causes one or the other to lose their tokens.
You can minimize these risks by investing with an established platform or exchange to help facilitate your crypto loan. There are numerous options to choose from in both the centralized and decentralized spaces, so be sure to compare the platforms and features before committing to any crypto lending platform.
Are crypto loans taxed?
It depends. If you’re a borrower, you likely won’t be subject to tax on the crypto you borrow, as you’re not making a profit from the loan and are instead paying interest. As a borrower, you may be able to deduct the interest loan payments on a crypto loan.
While the IRS has not issued any clear guidance on whether crypto loan interest payments are considered tax-deductible, it treats crypto assets like it would fiat currency, so it’s likely that crypto loans will be treated similarly to traditional loans. That means you may be able to deduct the interest payments, whether you’re an individual or a business.
On the other hand, if you’re acting as the lender, you will likely owe taxes on the interest you are paid by the borrower. Crypto gains are considered to be income by the IRS — and just like any other type of profits you earn, you will likely owe taxes on it.
What is loan-to-value (LTV) and how does it affect loan rates?
Loan-to-value, or LTV, refers to the percentage of the value of your collateral that you may borrow against. The LTV of a crypto loan is calculated by dividing the loan amount by the market value of the tokens being used as collateral.
The LTV on a crypto loan can fluctuate, sometimes significantly, due to the crypto market volatility. Let’s say that the value of your collateral increases but the value of the token you borrowed stays the same or decreases. In this case, the LTV of your loan decreases because the collateral has become more valuable than the tokens you borrowed. On the other hand, if the value of your collateral decreases but the value of the tokens you borrowed stays the same or increases, your LTV would increase.
The LTV can also affect crypto loan rates. The higher the LTV, the riskier the loan is — which then typically translates to paying a higher interest rate in return. Some platforms cap the LTV at 50% and offer lower interest rates to borrowers with LTVs that are lower than 50%, while other platforms may allow borrowers to have LTVs up to 90% in return for higher-than-average interest payments.
You may also be at the mercy of fluctuating LTV after you’ve secured your loan. For example, if the value of your collateral declines and your LTV climbs above a certain point, you may have to increase your collateral in order to maintain your loan. And, the lender may even have the right to sell some of your assets to cut your LTV, so it’s important to know what exactly the LTV requirements are and how they can affect your loan before you opt in.
Interest-only loans vs. interest & principal: How do they compare?
When you borrow crypto, you may have the choice between an interest-only loan or a loan for interest and principal. There are potential benefits and downsides to both options.
An interest-only loan is a loan that only requires you to pay interest on the loan for a certain period of time. Once that term is over, you’ll owe any remaining amount for interest plus the principal in either one lump sum or in monthly payments. This type of loan can help keep your payments low initially but could have a high lump sum payment or high monthly payments in the long run.
An interest and principal loan is a loan that requires you to make regular (typically monthly) payments for both the interest and the principal combined. The repayment schedule typically starts shortly after the loan has been issued and continues for a specified term until the loan and interest are fully repaid. This type of loan does not start out with low initial payments, but the benefit is that it keeps your payments consistent from month to month.
Interest-only loans are typically more expensive than interest and principal loans, as the rates tend to be higher. And, because you are not initially paying down the principal with an interest-only loan, your LTV will typically stay high (unless the value of your collateral increases).
What are the common loan terms?
- Collateral: The collateral is the asset that the borrower allows the lender to hold temporarily in order to secure a loan. With crypto loans, the most common type of collateral is tokens or coins, which are held by the exchange or lender until the loan and interest are paid.
- Grace period: The grace period of a loan is a period of time in which the lender will not require the borrower to make payments. For example, a 60-day grace period would be a 60-day period in which the borrower would not have to make any payments to the lender. Once that grace period is over, the repayment period starts, and the borrower will typically need to issue a payment for the portion of both the principal and interest to the lender each month.
- Interest: The interest on your loan is a fee that’s paid to a lender in return for borrowing money. The interest rate on a loan is typically expressed as an annual percentage rate, or APR. This APR will represent a certain percentage of the total principal and is what you will need to repay in addition to the principal.
- Origination fee: A loan origination fee is a fee that’s charged by a lender in return for evaluating and processing a loan application. The origination fee is typically a one-time fee that’s charged up-front and is typically calculated as a percentage of the loan’s face value.
- Principal: The principal of a loan is the amount of money or crypto that was borrowed, minus the interest. The principal you owe can change during the term of your loan as you make payments to the lender and reduce the amount you owe.
Are there any other fees for crypto loans?
If you’re looking for a crypto loan, you may encounter a number of different types of fees tied to these loans. These fees typically vary by platform, but can include exchange fees, network fees, deposit or withdrawal fees, and origination fees, among others.
One common type of crypto loan fee is an origination fee, which is a one-time fee that is typically calculated as either a flat fee or a percentage of the loan amount. Not all lenders will charge this fee, but it can be costly if they do. For example, BlockFi charges a $1,000 origination fee on crypto loans, so you’ll need to account for that amount if you’re borrowing on this platform.
Given that each platform charges its own fees for crypto loans, it’s important to do your research beforehand to find out which one works best for you. Look at all of the potential fees and charges associated with each platform before making your pick.
Crypto loan platforms for August 2022
Crypto loans are offered on both centralized and decentralized platforms. These platforms are commonly referred to as CeFi and DeFi platforms, and there are some significant differences between the two. Here’s what you should know about these options:
The 5 top CeFi crypto loan platforms of 2022
1. SALT Lending
SALT Lending is a relatively new borrowing platform that allows users to borrow up to 60% of their loan collateral with the added features of traditional personal loans. For example, SALT loans have no fees for withdrawals, prepayment, loan origination, custody, or bounced ACH payments. Furthermore, borrowers are automatically enrolled in the StackWise program, which rewards users with Bitcoin, Ethereum, or USDC when they make their first monthly payment. SALT’s transparency makes it easy to understand how much interest you’ll pay depending on how much of your collateral you use to borrow, and some users can enjoy rates as low as 0.52%.
Why borrow with SALT?
- One-time rewards for making your first monthly payment.
- Instead of liquidating your position, SALT offers stabilization to convert your balance to USDC and allow you to re-enter the market when the time is right for you.
- SALT also offers business loans for start-ups and purchasing mining equipment.
2. Nexo
Nexo is the top CeFi borrowing platform, thanks in part to the fact that the platform offers a loyalty program that can benefit borrowers in big ways. With Nexo, borrowers can borrow both stablecoins and other cryptocurrencies, but what’s unique about the platform is that the interest rates you pay on borrowing are directly related to your loyalty level. That makes it possible to borrow at between 0% to 1.9% in some cases. That’s an excellent rate for any borrower. And, borrowers can also use their crypto as collateral for borrowing fiat — or plain old American dollars. That means if your borrowing rate is at 1%, you can borrow cash for a rate that’s lower than any traditional bank can offer you.
Why borrow with Nexo?
- Rates start at 0% for borrowing and never exceed 13.9% — which means that this platform is often the cheapest way to borrow.
- You have the choice between fiat, crypto, or a combination of both to repay your credit line.
- The platform offers more than 40 fiat currencies, and you can borrow instantly using USDT or USDC.
- Approval can be instant for borrowers and the funds are typically available within 24 hours.
3. Binance
As the world’s leading crypto platform, Binance is another solid option for crypto borrowers. With this platform, you can borrow several types of cryptos, including BUSD and USDT. As long as you’re a registered Binance user, you can lend your tokens to borrowers on this platform. The loan terms are flexible and the interest is calculated hourly based on the hours borrowed. Plus, the funds you borrow can be used for any purpose, whether it’s staking, trading, withdrawing, or something else entirely.
- Interest rates: Fixed or floating
Why borrow with Binance?
- The platform supports borrowing for numerous types of cryptos.
- Terms are flexible and borrowers can choose from terms that include 7, 14, 30, 90 or 180 days.
- There are no early repayment penalties if you want to pay back what you borrowed before the term is up.
- The borrowing fees are pretty low in comparison to other platforms.
4. BlockFi
Another option for borrowing crypto is BlockFi, which is the only independent lender with institutional backing. Interest rates for borrowing on this platform can be as low as 4.5%, which isn’t the lowest option — but is still significantly lower than many other platforms. And, you can borrow both stablecoins and other types of tokens on this platform. You can also access large amounts of tokens on BlockFi, as the minimum loan is $10,000. Funding happens the same day you’re approved, and there’s no prepayment penalty to deal with if you want to pay your loan off before the term ends.
Why borrow with BlockFi?
- Interest rates can start as low as 4.5%, which makes it relatively cheap to borrow crypto on this platform.
- Borrowers have the option to choose between stablecoins and other types of coins, with token options that include Bitcoin, Ethereum, and Litecoin, among others.
- Funding occurs the same day as the approval of your loan.
- There are no prepayment penalties to deal with.
5. CoinLoan
The CoinLoan platform may also be a good option to consider if you want to borrow crypto. CoinLoan lets you borrow fiat (cash) and crypto, and it offers a handy rate comparison tool so you can compare the rates you’re offered with other platforms, allowing you to see how competitive your rate on CoinLoan truly is. In addition, the platform offers flexible loan terms, and as a borrower, you can set your own term length, repayment options, and other loan factors. The only requirement to borrow is to offer an asset as collateral.
Why borrow with CoinLoan?
- The annual interest rates for borrowers start at 4.95% and go up to 11.95%, which is lower than a lot of competitor rates.
- Crypto-to-crypto, crypto-to-fiat, and fiat-to-crypto loans are all options with this platform.
- The rate comparison tool is handy for borrowers and lenders alike.
- Borrowers set their own terms, including the loan length and repayment options.
The 5 top DeFi borrowing platforms of 2022
1. Aave
As a borrowing platform, Aave offers the most diverse number of loan types — and has become a market leader in the DeFi sector as a whole. The platform offers borrowing for at least 20 of the most popular cryptocurrencies, including most major stablecoins and DeFi tokens like SNX, MKR and KNC.
In addition, Aave has become a primary source for Flash loans — which give users the ability to borrow an unlimited amount of assets so long as they are paid back in the same block. Users can also choose to lock in either a fixed or a floating interest rate, which provides a degree of flexibility that other lending platforms currently do not offer.
- Interest rates: Fixed or floating
Why borrow from Aave?
- Users have more flexibility with the choice of either a fixed or a floating interest rate
- Flash loans are an option, which can be useful for preventing Maker Vault liquidations and taking advantage of arbitrage opportunities.
- The platform offers a Risk Framework, which clearly displays a different rating (from A+ to D-) for assets on the platform. This gives users a clear idea as to which assets are the safest to take a loan on at any given time.
- Users can trade with leverage on Aave borrowing rates using Swap Rate.
- Borrowing fees are incurred at inception.
- Loans can be insured using Nexus Mutual.
2. Maker
Maker is a permissionless lending platform that was responsible for the creation of DAI, the first decentralized stablecoin. The platform is built on the Ethereum blockchain, and allows users to borrow with a loan on a stable, trustless asset. Users can also opt to lend their tokens to borrowers in return for interest payments.
Using Oasis Borrow, users can lock collateral — which currently includes ETH, USDC or BAT — to mint Dai. Locked collateral incurs a “stability fee,” which can be paid back at any time.
Why borrow from Maker?
- As a stablecoin, it’s easy to know exactly how much debt will be owed on any given loan.
- Users can easily re-collateralize or draw additional Dai directly from the Oasis dashboard.
- The platform offers asset management tools like DeFi Saver, which allow users to ensure Vaults are sufficiently collateralized, even when the market is volatile.
- Maker Vaults are integrated into other asset management tools like InstaDapp or Zerion for easier tracking.
3. Compound
Compound is a leading platform in the DeFi lending space, and has long been established as having a strong foundation for trusted cryptocurrency loans. The Compound platform supports fewer assets than Aave, but it offers very liquid capital pools in return. The platform is also a trusted option across the board for other interest-earning opportunities, and it offers a wide range of tools for asset management and other functions.
- Interest rates: Variable and fixed
Why borrow from Compound?
- Compound has proven itself to be a reputable provider with a strong reputation and backing.
- This platform currently offers the most underlying collateral of any lending protocol – which means the capacity for loans is quite high.
- With tools like Swap Rate and Opyn, users can hedge against variable interest rates and lock in fixed rates on loans.
- Borrowers can insure their loans using Nexus Mutual.
- Users can leverage asset management tools like Zerion and DeFi Saver to manage their loans.
4. dYdX
dYdX is a hybrid DEX, making it a unique platform in this space. It offers functionality for lending and margin trading with low fees attached — and opening a loan on dYdX does not come with transaction fees. As such, it’s a great way for users to “borrow” cryptocurrencies to open leveraged loans on Ethereum and Bitcoin.
Why borrow from dYdX?
- Opening a loan on dYdX does not incur a transaction fee
- Users can borrow USDC, DAI or ETH to open up to 5x leveraged positions on ETH.
- dYdX also offers perpetual futures, which means that users are able to open up to a 10X leveraged position on BTC.
- dYdX uses cross-margin so that users can pool together all their assets on the platform rather than using just one.
5. Alchemix
Alchemix is another decentralized platform that allows borrowers and lenders to capitalize on the crypto lending space. What’s unique about Alchemix is that borrowers can borrow up to 50% of the collateral they put down, and it won’t lock your deposit or charge you fees for borrowing — and your funds are accessible 100% of the time. You can also repay your debt whenever you like, and the platform won’t liquidate your deposit. It also offers a wide range of collateral types, which makes it easier for borrowers to take advantage of what the platform offers.
Why borrow from Alchemix?
- Borrow up to 50% of your deposited collateral.
- You can choose to self-liquidate your own loan at your own discretion.
- The platform doesn’t lock your deposit or charge you fees.
- The funds you put up for collateral are accessible 100% of the time.
- The debt can be repaid whenever you like.
Popular crypto collateral tokens
There are a few different popular types of crypto tokens used as collateral, including:
Borrow against Ethereum (ETH)
Ethereum, or ETH, tokens are one of the most popular tokens used as collateral. A large percentage of borrowers opt to put up ETH as collateral, as it is supported by virtually every borrowing platform and the value doesn’t fluctuate as much as it does with many other types of tokens.
Borrow against Bitcoin (BTC)
Another popular option for collateral is Bitcoin, or BTC. Not only is the token a big name in crypto and in borrowing, but certain platforms allow users to put up BTC as collateral to receive stablecoins, like USDC or DAI, in return.
Other common tokens used as crypto collateral include:
- LTC
- AAVE
- NEXO
- AVAX
- MATIC
- 1INCH
- Numerous others
Frequently asked questions
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Why do crypto borrowing interest rates change?
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What do people use cryptocurrency loans for?
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What do I need to get started with a crypto loan?
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What is the biggest factor that affects interest rates when borrowing against crypto?