One of the most common questions crypto users have is whether they can make a major purchase, like buying a house or a car, with their crypto assets. The answer can be complicated, as many mortgage providers don’t accept crypto as collateral. One possible solution is using crypto-backed loans to secure cash that can be put toward a major purchase
That’s right: You can now leverage your crypto holdings to borrow cash you can use to meet a wide range of financial goals. These include making a down payment on a home, investing in real estate, purchasing a car, funding a business, making home renovations, or refinancing high-interest debt, among other purposes.
Leveraging Your Crypto Assets
Obtaining a crypto-backed loan
is similar to obtaining a traditional collateralized loan. With a traditional loan, you normally pledge a personal asset, like your primary residence or small business, as collateral in order to receive funds. If you can’t repay the loan according to the agreed-upon terms, the lender has the right to repossess the assets you’ve pledged as collateral.
With a crypto-backed loan, you pledge your crypto holdings as collateral for the money. There are several key benefits to obtaining this kind of financing. For one, it lets you maintain the potential upside of your crypto investment. If you’re like many crypto investors, you believe the investment will appreciate over the long term. By obtaining a crypto-backed loan, you don’t have to liquidate your crypto assets. Instead, your investment can remain intact and you’ll benefit from potential appreciation.
If the loan remains healthy (based on the loan-to-value ratio
) over the course of the term and the loan balance is fully repaid, any crypto collateral is typically returned. Plus, you may be able to realize tax benefits. Obtaining a crypto-backed loan
isn’t usually a taxable event, so you don’t have to realize capital gains or pay capital gains taxes when you take out the loan. As always, be sure to consult with your tax advisor for more details about your specific situation.
What You Can Do with Loan Funds
So what can you actually do with the money obtained from a crypto-backed loan? Quite a lot, in fact. Here are a few of the most common ways reasons people secure crypto-backed loans:
Purchasing a primary residence. Mortgage lenders usually don’t accept crypto assets as collateral for a primary residence. By taking out a crypto-backed loan, you’ll receive cash you can use toward a down payment for a new home.
Investing in real estate. Similarly, most lenders are hesitant to accept crypto assets as collateral to purchase investment property. But a crypto-backed loan can provide cash that you can use to purchase real estate investments and thus diversify your portfolio.
Making home renovations. Whether it’s remodeling a kitchen or master bathroom, building a new deck or refinishing a basement, home renovations can be a major expense. A crypto-backed loan can provide the funds you need to tackle a big renovation project without dipping into other sources of cash.
Consolidating high-interest debt. If you’re carrying large balances on high-interest credit cards, you could be paying hundreds of dollars a month in interest. You could use the cash from a crypto-backed loan to pay off higher-interest credit card balances, effectively making one loan payment each month at an interest rate that’s potentially lower than credit card rates.
Funding a small business. If you own a small business, there may be times when you need access to cash to fund working capital needs, meet payroll, or enable expansion. A crypto-backed loan can provide this kind of small-business financing without having to tap into potentially more restrictive or expensive sources of commercial financing.
How to Apply for a Crypto-Backed Loan
To apply for a crypto-backed loan, you provide a crypto lender with financial information as well as your requested loan amount, the kind of crypto assets you will pledge as collateral, and KYC/AML information for identity verification purposes. An application for a crypto-backed loan generally will not affect your credit score.
Once you receive a loan offer, review it carefully. Pay close attention to the interest rate
, the APR, the origination fee, and the amount of crypto collateral you’ll be required to stake. Once you accept the loan offer, you will send your crypto collateral to the crypto lender’s custodian for safeguarding.
BlockFi offers crypto-backed loans using Bitcoin (BTC), Ether (ETH), and Litecoin (LTC) as collateral. Our easy online application only takes a few minutes to get started. To learn more, visit https://blockfi.com/crypto-loans
or send an email to email@example.com