If you’ve got a healthy balance in your crypto wallet but little traditional credit history, you might find it difficult to access a loan from a conventional lender.
However, there’s now a new wave of lenders that specialise in helping crypto enthusiasts use their digital assets as collateral so they can access the finance they need.
CRED is one of those providers. Formerly Libra Credit, CRED offers fiat and cryptocurrency loans backed by digital currency and aims to open access to credit anywhere, anytime.
Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific
provider, service or offering. It is not a recommendation to trade.
3 things you should know about this loan
- Borrow fiat or cryptocurrency. CRED offers access to loans denominated in either fiat or cryptocurrency.
- Instantaneous loan approval. You can apply for a loan through CRED 24/7, with instantaneous approval provided using the platform’s AI-based credit assessment process.
- Discounted interest rates. If you hold a minimum of 1% of CRED’s native token (LBA) as collateral for your loan, you can take advantage of discounted interest rates.
How a CRED loan works
CRED offers a decentralised lending ecosystem based on the Ethereum blockchain. Its loan products are designed to suit people whose needs are not met by a traditional bank, such as first-time borrowers, those with crypto assets and citizens of developing nations.
Here’s how a CRED loan works:
- You create a CRED account and verify your identity.
- You offer a supported cryptocurrency as collateral and apply for a loan.
- CRED uses its own AI-based credit assessment framework to assess the creditworthiness of your collateral as well as your individual credit information.
- If you satisfy all loan eligibility criteria, CRED provides you with a loan, backed by its network of partners, which includes banks, financial institutions and professional investors as well as crypto lenders.
- Once the terms of your loan are locked in, the funds are deposited into your digital wallet or bank account.
- You pay back the loan amount plus interest and fees over an agreed period.
Loan eligibility criteria
CRED uses an AI-based system to assess your loan application based on two variables:
- Credit score. Data is collected from your mobile application behaviour, application profile, social network, banking history and matching entries from credit rating providers.
- Collateral grade. CRED uses a machine learning algorithm that calculates the volatility of your collateral. The system adopts WebCrawler, a technology that analyses everything from trading history and Github repositories to media reports and cryptocurrency forum discussions.
Key features of CRED loans
- Loan terms. When you apply for a CRED loan you can obtain a “revolving line of credit”, which means that you can draw down on the loan as long as the underlying crypto assets remain pledged.
- Currencies accepted as collateral. The platform currently accepts three main cryptocurrencies as collateral: bitcoin (BTC), Ethereum (ETH), XRP (XRP) and LBA, with more to come. This lending approach allows you to access the funds you need without having to cash out your crypto assets, or to hedge against market volatility by borrowing a “stablecoin”.
- Borrow fiat or crypto. CRED allows you to borrow any fiat currency (such as AUD, USD, EUR, NZD) and USDT.
- Discounted interest rates. If you offer CRED’s LBA token as collateral for your loan, you can take advantage of lower-interest repayments. LBA is the membership token of the CRED platform, which means you’ll need LBA to submit a loan application, and is also used to pay service fees on CRED.
- 60% loan to value (LTV) ratio requirement. CRED loans have a minimum LTV ratio of 60%. If the cryptocurrencies you’ve pledged as collateral fall in value during the loan period and the LTV ratio increases to 75%, a valuation event will be triggered, requiring you to reduce the LTV to 60% or less. This means you’ll either need to deposit additional collateral or make an extra loan payment to meet the maintenance margin. Failure to do so will result in the liquidation of your crypto collateral.
- Fast access to funds. CRED offers instantaneous loan approval 24/7, so if your loan application is accepted, funds can be deposited from the lender’s wallet into your digital wallet within minutes. If you want the funds deposited directly into your bank account, you’ll need to wait up to five working days, depending on your location.
How much will the loan cost?
At the time of writing (October 2018), there was limited information available about the total cost of obtaining and repaying a CRED loan.
According to details provided to Finder by CRED, loan interest rates can be expected to vary between approximately 9% and 14%. However, the exact rate you receive will depend on your financial situation and loan requirements, such as the duration of the loan.
An annual administration fee also applies, but the amount of this fee is yet to be confirmed.
Pros and cons of a CRED loan
- Fast access to credit
- Single digit interest rates
- Designed to suit borrowers whose needs aren’t being met by traditional lenders
- Borrow fiat currency, stablecoins or other cryptos
- Reduced-interest repayments when LBA used as collateral
- Limited information available online about specific loan features
- Mobile app still being developed
- Crypto volatility could mean that you have to deposit additional collateral or make an extra loan payment to meet the loan to value (LTV) requirement
How to apply for a loan with CRED
If you’ve compared your borrowing options and you’d like to apply for a crypto-backed loan from CRED, visit the CRED website to create an account. Once you’ve signed up with your email address and created a password, you’ll need to verify your identity by:
- Binding your Ethereum address to your CRED account
- Entering your nationality
- Providing your full name
- Uploading proof of ID
Once your identity has been confirmed, you can enter your collateral amount, the currency you want to borrow and your desired term to apply for a loan.
First conceived in 2017, CRED was co-founded by ex-PayPal executives Lu Hua and Dan Schatt. Initially known as Libra Credit, the company was developed with a mission to provide “credit for the real world”.
Its token sale was held in May 2018, raising more than US$26 million in funding. CRED’s desktop platform for crypto-to-crypto/fiat lending went live in Q3 2018, and the CRED mobile app is due to launch before the end of 2018.
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly
volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of
future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.