CAN I GET A CRYPTO LOAN WITHOUT COLLATERAL ON BINANCE?
21/05/2022
By Damilola Ogungbayi olushola
Table of contents:
- Introduction of Crypto Loans
- What are the risks of crypto loans without collateral?
- How to borrow crypto on Binance
- How to repay crypto Loans
- Make your first Binance Loans
INTRODUCTION OF CRYPTO LOANS
The fundamentals of crypto loans are very similar to traditional loans. One key factor where they differ lies in how the funds are accounted for. With traditional loans, banks or other institutions use credit scores to calculate the amount of risk they can invest into a borrower. With crypto loans, credit scores are totally unnecessary. Instead, traders can use their crypto assets as collateral for the lender to hold until the loan is paid back.
Aside from this difference, the mechanisms behind the loan are similar in a technical sense. Crypto loans generally collect interest hourly, instead of monthly. Also, the terms for loans can be shorter than traditional loans. With crypto loans, traders can borrow from 7 to 180 days on platforms such as Binance Loans. The reason crypto loans operate on such a shorter time scale is that cryptocurrencies are much more volatile than traditional currencies, making them riskier for the lender and borrower. Should a cryptocurrency drop drastically in value, the collateral a lender took on could become worth much less than what was borrowed. Thus, hourly rates and shorter borrowing terms are applied.
WHY DO CRYPTO LOANS REQUIRE COLLATERAL?
1.Collateral is used as a security deposit
Unlike traditional loans, credit checks are not required to borrow crypto. Instead, collateral is used as a security by lenders to reduce their lending risk. In the event a borrower is unable to repay the debt, the collateral will be seized. This model allows people with little to no credit history to borrow crypto.
2.Collateral is used to calculate lending risk
Collateral can also be used by crypto loan providers to calculate an individual's lending risk and terms of the loan, including payment period, interest rate, and amount of lendable funds. The theory is simple – the higher the collateral, the lower the risk for lenders.
This can be done by calculating Loan-to-Value (LTV). LTV is the ratio of the value of an individual’s loan to the value of their collateral. With LTV, crypto loan providers like Binance Loans can assess individual lending risk levels, offering crypto loans while protecting their business.
Calculating LTV on Binance Loans
This is the formula used to calculate the Loan-to-Value ratio:
LTV = Loan Amount / Collateral Amount x 100%
Loan Amount = Principal + Interest
Note that different assets used as collateral have different initial LTVs. Refer to this Index Price page when calculating your LTV. For an in-depth guide to calculating your LTV, check out How to Use Binance Loans.
WHAT ARE THE RISKS OF CRYPTO LOANS WITHOUT COLLATERAL?
1.Falling prey to scams
From the crypto lender’s perspective, it is difficult to reduce lending risk without credit checks or collateral. If you do manage to find non-collateral crypto loans available, look for red flags to make sure it’s not a scam. Are you giving away important information? Have the lenders been in the media for scam cases? Do the loan terms sound too good to be true? Are other users talking about their services? These are some questions that you may find useful when verifying the legitimacy of crypto lenders.
In some cases, victims of scams have been locked out of their trading accounts, losing access to their funds. Fraudsters may also attempt to trick victims into handing over their personal information, including account numbers and passwords.
2.Extremely high interest rates
It’s unlikely that legitimate crypto lenders will offer non-collateral loans as it leaves them vulnerable to losses if borrowers cannot repay their debts. However, there may be crypto lenders that do so in exchange for extremely high interest rates, smaller amounts of lendable funds, or shorter payback periods. However, these types of loans may not be suitable for traders who are looking to increase their position size with leveraged trades. This is because traders would have a smaller window period to make profitable enough trades that can pay off the high interest rates. Therefore, traders are cautioned against applying for non-collateral loans.
HOW TO BORROW CRYPTO ON BINANCE?
Borrowing cryptocurrencies is much simpler than borrowing from a traditional financial institution. In fact, anybody can open a crypto loan even if they have no financial history. On Binance, anyone can borrow a loan, so long as they are a registered user. Also, they are able to borrow various types of crypto such as BTC, ETH, BNB, USDT, and BUSD.
Once the user has decided which assets they would like to borrow and how they will supply their collateral, they must then determine the length of the loan term (7-180 days). Depending on the amount of collateral, the platform will automatically determine the hourly interest rate to be applied. Interest rates are usually lower than traditional loan rates because of the collateral. Through Binance Loans, users can borrow up to 65% of the value of their collateral and loaned funds can be used anywhere.
HOW TO REPAY CRYPTO LOANS
Repaying the loan is simple enough. Borrowers (that use Binance) are required to manually repay the loan via the Order Page It is important to know that interest is required to be repaid before the principal, such that the borrower doesn’t need to repay the entire principal in one payment. In the case that a borrower can repay early, and the entire amount of principal is paid back, the interest is then charged in accordance with the length in time (hours borrowed) of the loan. Users also will not incur an early repayment fee.
MAKE YOUR FIRST BINANCE LOAN TODAY
Binance Loans has launched a promotion to reduce interest rates on the platform. With the interest rate reduction users may enjoy hourly interest rates that are as low as 0.000573% when borrowing assets with any collateral on Binance Loans.
FINAL THOUGHTS
While it might be possible to find crypto loan providers that don’t require collateral, the chances of encountering a scam are very high. Consider using trusted service providers like Binance Loans to borrow loans at competitive rates to avoid getting your identity or assets stolen.you can click on the link below
