How to Get a Loan in BTC
Donald Pendergast November 16, 2018 Articles Bitcoin 0
Loans: Some people need them. Some people make them. And, up until recently, all bank and P2P loans were transacted in fiat currency. But one big question for Bitcoin aficionados has been: how to get a loan in BTC?. Is a loan in Bitcoin feasible for you? Does it make financial sense for you? How/where can you get a loan in Bitcoin? Follow along and you’ll learn the basics right here.
Loans: Essential QuestionsBefore you learn how to get a loan in BTC first ask yourself some hard questions:
- Why do I need to borrow capital in bitcoin or in any other currency?
- Is this loan for a productive purpose (business expansion, rental real estate, education, etc.)?
- Am I confident that the benefits of taking on a loan will far outweigh the costs and potential risks?
- What if I can’t repay the loan on time? Can I handle the consequences?
- Are the interest rate and fees for a Bitcoin loan high when compared to a traditional bank loan?
Check the RatesBanks and other fiat-based lenders use your credit score, annual income, debt load, etc. to determine if you’re an acceptable credit risk. Your loan interest rate will be determined by those metrics. For example, US-based Lightstream.com may grant you a 24-month, $10,000 home improvement loan at a rate of 4.99 to 12.24%. A “PreK-12 education loan” comes with an interest rate range of 6.24 to 13.69%. There are no loan origination fees. Compare those interest rates to those charged by Germany-based Bitbond.com. A twelve-month, 10,000 euro business loan in Bitcoin will set you back at least 1,124 euros in interest charges. That’s 11.24% p.a. (per annum) before adding in the 2 to 3% loan origination fee. Late fees are listed as .01% of the overdue amount per day. (All of above info from the Lightstream.com and Bitbond.com websites.) Two takeaways from the above info:
- If you possess an excellent credit score, borrowing from a traditional fiat lender may provide you with a low-interest rate.
- The lower your credit score, the more a traditional fiat lender’s rates compare to a Bitcoin lender’s rates.
How to Get a Loan in BTCUnlike traditional fiat lenders, Bitbond.com uses a trust factor ranking system to help determine how likely you are to repay your Bitcoin loan. First, provide your personal details:
- Name, gender, age
- Contact info
- Employment details (recent pay stubs, the name of your business or employer’s name)
- Residence details (and proof of gas, electric, water bills)
Shiny, Happy CustomersFor example, if your business has lots of happy eBay, Etsy, Shopify or Amazon customers, that’s a big plus for you. If you have a long-term, stable relationship with a regulated bank, that’s also viewed favorably. Same goes if you do a lot of business via PayPal, and with minimal customer complaints. Finally, Bitbond wants to check out all of your social media accounts such as Twitter, Facebook, LinkedIn, etc.
A Fine, Upstanding CitizenThe more that all of these connections paint you as a stable, honest merchant, the more likely it is for your loan to be approved. The Bitbond borrower rank covers a range from A to F, with an A rank getting you the lowest interest rates. Remember, it’s other Bitbond account holders who are actually taking the risk to loan you their Bitcoin. Bitbond is simply the facilitator, connecting you with others willing to loan you their Bitcoin at interest. Approval of your loan can take up to 14 days (the maximum time for your loan to be listed) but is usually quicker. It simply depends on how favorably Bitbond ranks all of your personal details, banking, and business connections. If your Bitbond borrower rank is E or F, you may find it difficult to locate a low interest rate loan.
Pegged – or Not?Lenders on Bitbond can specify if your loan is to be repaid via a fiat currency peg (the base currency of the loan) or a floating BTC exchange rate. From the Bitbond website, an exact definition:
The base currency of a loan is the currency in which the payment schedule is calculated. If this is bitcoin, then the borrower needs to repay the bitcoin loan amount plus interest. If US dollar or Euro is the base currency, the loan repayments are calculated in dollars or euros. The actual payment is still conducted in bitcoin. But the amount of bitcoins that are repaid each month fluctuate with the bitcoin price. The value of the payment in dollars or euro is fixed. This is done to mitigate bitcoin price fluctuations for borrowers and lenders.(Thomas from Bitbond.com replied almost immediately to my list of emailed questions. That certainly bodes well should you or other borrowers/lenders require rapid customer service.) Clearly, most sane borrowers will choose a US Dollar or Euro base currency peg for repayment of their loan. This eliminates worry over potentially big Bitcoin price moves during the loan’s lifespan.
Time’s UpThe Bitbond website provides a sample loan repayment calculator for a hypothetical $10,000, twelve-month, Euro-denominated Bitcoin loan. Here’s a screenshot: Bitbond lenders can structure loan repayments so that borrowers pay more interest per month in the early stage of the loan. This can help reduce losses to the lender should your loan become unpayable mid or late-term. It also puts more pressure on you to make good on the loan. US auto loans were structured this way back in the pre-1990 era. It’s based on a loan repayment formula known as the rule of 78s. It’s definitely tilted in favor of the lender!
Deadbeats BewareIf you fail to repay your Bitcoin loan, Bitbond will give a ring to its in-house collections department, and you’ll surely be contacted about your unpaid obligation. Should that fail to get your attention, the company will then refer your case to an external collection agency to apply even more pressure. Walking away from a loan obligation is a sure way to wreck your financial future. Don’t do it.
SummaryHow to get a loan in BTC? It’s a pretty straightforward process. However, there does not appear to be any real advantage in borrowing in Bitcoin vs. borrowing in a fiat currency, unless:
- Your credit score is too poor to obtain a loan from a traditional lender (bank, credit union, S&L, etc.), and
- You can earn a high borrower rank from Bitbond vis a vis your high-quality portfolio of online business, bank account, PayPal and social media connections.