Compare bitcoin loans and lending services

Many cryptocurrency loans work as a form of peer-to-peer lending. The borrower uses their cryptocurrency as collateral to take out a loan, while the lender puts up their own cryptocurrency to serve as a loan and earns some of the interest that the borrower pays.

In this way, cryptocurrency users can be both borrowers and lenders, and either get a loan or earn interest on their cryptocurrency as desired.

While the basic principles remain the same, different platforms work in different ways.

Compare cryptocurrency loans

All fees, rates and platform information is current as of 9 December 2019.

How does cryptocurrency lending work?

Different platforms work in different ways, but the general principle is that of peer-to-peer lending. Borrowers use their cryptocurrency as collateral to get loans, while lenders deposit cryptocurrency, which is used to fund the loans.

Most platforms screen borrowers and issue the loans themselves, then simply share the profits with the lenders. This creates an experience similar to the way banks offer loans and pay interest to savings account holders.

Others, most notably Ethlend, act as marketplaces where borrowers and lenders can come together and browse each other's offers.

In many cases, a platform will have its own native token, which can be optionally used to get preferable rates, discounts or other bonuses.

One of the most important features of these platforms, and one of the reasons they can offer relatively high earnings for lenders, is the fact that they use cryptocurrency as collateral with a typical LTV ratio of around 50%.

This means that there's plenty of collateral to go around, even in the event of a crypto market drop. If a borrower drops below their agreed LTV ratio, their collateral can be quickly and easily liquidated. As an added bonus, it can almost always be sold incrementally as needed, at fair market rates, without any kind of depreciation beyond the price change.

This helps reduce, and theoretically completely eliminate, the risk of default from borrowers. It's essentially just using one type of money as collateral for a loan of a smaller amount of another type of money. This safety means that these types of platforms don't necessarily have to spend as much time and money conducting credit checks, screening borrowers, hiring debt collectors, chasing defaulted loans, setting up payment plans and doing all the other things lenders have to do.

In fact, it can even be used as a framework for completely automating the entire lending process, which some platforms are doing, to reduce costs even further.

• What happens to a borrower's collateral when cryptocurrency prices drop?

  The loan to value (LTV) ratio is how much money someone can borrow with their collateral.

  For example, with a 50% LTV, someone with $10,000 of Bitcoin could use it as collateral to borrow $5,000.

  They are obligated to meet the minimum LTV standards, and lending platforms will typically reserve the right to liquidate portions of the collateral to maintain the agreed LTV ratio if they don't.

  For example, if someone uses $10,000 of Bitcoin to borrow $7,000 – the maximum amount possible with a 70% LTV ratio – and then Bitcoin prices fall by 40% so that they only had $6,000 of collateral, the borrower would need to top up with another $4,000 worth of cryptocurrency to get back to $10,000 and maintain the agreed LTV ratio.

  If they don't, the lending platform may be able to sell enough of the borrower's collateral to bring the loan back to the agreed 70% LTV ratio.

  In this way, higher LTVs are riskier but let borrowers access more money, while lower LTVs are safer but don't let borrowers access as much money. Similarly, it can be safer for borrowers not to borrow the maximum amount their collateral allows, to avoid needing to top-up or risk having their cryptocurrency sold after a price drop.

  Conversely, if cryptocurrency prices rise this allows borrowers to take out more money, within the limits allowed by their collateral.

  To avoid market volatility it's possible to use stablecoins, which remain pegged to fiat currencies, as collateral for a loan. It typically won't make any sense to do this though, because you might as well just sell the cryptocurrency and spend your money, instead of paying to service a loan.

  However, some platforms will let borrowers use a basket of different cryptocurrencies as collateral, and adjust the basket's balance as needed to minimise their risk.

How to get started

• Step 1. Compare crypto lending platforms

  In addition to rates, you'll want to look for a platform that supports your desired (crypto)currencies, and has minimum deposit amounts that suit your needs.

  If you only want a small loan, for example, not all platforms will be equally useful. Similarly, if you as a borrower want to better secure the value of your holdings against market forces, you may want to look for a platform that supports stablecoin deposits. If you're a borrower, you should make sure you know what will happen in the event of major price swings, and whether you can keep your collateral funded.

  You should also compare platforms on reputation, security and overall trustworthiness by looking at user reviews, terms and conditions, whether they meet any licensing or compliance obligations, how they secure funds and other factors.

• Step 2. Sign up for an account

  You will typically need to register for an account on these platforms before you can lend or borrow.

  This may involve providing personal details and verifying your identity.

  Some platforms may also require trust scores or credit scores as a way of evaluating your creditworthiness. This, and your borrowing history on the platform itself, may affect the loan terms and conditions you can access.

• Step 3. Start lending or borrowing

  Once you've found a suitable platform, signed up and gotten verified, you can start using its services.

  In some cases, this may simply be making a deposit and earning some passive income from your new "cryptocurrency savings account".

  In other cases it may be taking out a fiat currency loan with Bitcoin as collateral, or trading.

  Different platforms have different features, so it can be worth exploring.

Pros and cons of cryptocurrency lending

Both borrowers and lenders have different pros and cons to watch out for when using these platforms.

Compare cryptocurrency lending platforms

Frequently asked questions

• Can I borrow money to buy more cryptocurrency?

  Yes, but it's just an extremely inefficient form of margin trading.

  Even if you use cryptocurrency as collateral to get a loan to buy more cryptocurrency, then use that as collateral for another loan to buy more cryptocurrency and keep doing that as far as you can, it is mathematically impossible to get more money than you have collateral as long as a platform's LTV ratio is less than 50%.

  If you do it anyway, then if the price of the backing cryptocurrency goes up you make more money than you would have otherwise. And if the price goes down, you may experience a chain reaction of collateral being liquidated.

  The end result is almost identical to an extremely inefficient, expensive and convoluted form of margin trading with less than 2x leverage.

• What's the best cryptocurrency lending platform?

  The best option depends on what you're looking for. Rates, fees and features will vary widely depending on the platform.

  However, some platforms are characterised by high minimums for borrowers, so if you're looking to borrow, looking at the minimums may be a good way of ruling out unsuitable platforms.

  If you're looking to earn money from your holdings, a good starting point may be to look at supported cryptocurrencies.

• Which cryptocurrency lending platform pays the most?

  The highest earning platform will vary over time as rates change. Also, the same platform may pay different amounts to different users.

  To find the highest payouts, remember to look at whether there are any conditions attached to higher earnings, whether it's simple or compound interest and how frequently it's paid out.