Getting started with cryptocurrency lending can be daunting, especially with so many platforms and options available in Australia, each offering different deals with various interest rates and loan terms. This can be confusing, especially if you're new to crypto loans. To make things simpler, we'll take you through some of the best options for crypto loans available to people living in Australia.
What is a Crypto Loan?
A crypto loan is when you borrow money or cryptocurrency based on the value of the cryptocurrency you use as security. This security, called collateral, can be any type of cryptocurrency, depending on what the lender accepts. Essentially, you're borrowing against the value of your crypto assets.
Read more: The Ultimate Guide To Crypto Lending - Everything You Need To Know
The Key Differences Between Crypto Loans and Traditional Loans
Crypto loans are different from regular loans in several key ways. First, regular loans usually involve fiat money, like Australian or US dollars, not cryptocurrency.
Regular loans are usually given out by banks, which often check your credit history or do other background checks. Crypto loans are less likely to require these checks because they use various types of cryptocurrency as collateral, seen as a global value store.
Another difference is interest rates. You might find better rates with crypto loans because it's cheaper for lenders to provide these loans. They're often secured with cryptocurrency, which cuts costs, and these savings are passed to borrowers through lower interest rates. Also, the crypto lending market is very competitive and operates with fewer costs. Unlike traditional banks, many crypto platforms don't have physical locations, lots of employees, or the banking regulations, allowing them to offer more attractive rates.
What are The Best Crypto Lending Platforms in Australia?
Let’s take a look at some of the best crypto loans for Australian residents, and provide a brief overview of them.
Ledn
Ledn is a leading choice for crypto loans, offering competitive lending and saving rates without hidden fees.
Other crypto lending companies can be unclear about their operations and some have even gone bankrupt suddenly. Ledn has an unblemished record of never pausing client withdrawals and offers Proof of Reserves. It prioritises asset security with world-class protocols, AES-256 encryption, 2FAactivation, and storage through qualified custodians, like BitGo. Ledn is committed to clear and open communication, ensuring clients are always well-informed about their financial dealings. They can check how assets are being used through monthly Open Book Reports.
The Ledn loans are only available for business purposes.
Ledn's Standard oans have a current annual percentage rate (APR) of 12.9% and a loan-to-value ratio of 50%.
Ledn also offers Custodied Loans, where collateral is not used to subsidise rates. This means, for a higher interest rate (currently 14.9% APR), clients can be assured that their collateral is safely stored and not being lent out. This option is great for those who prefer this extra security.
The new Custodied Loans from Ledn come with the same easy-to-use interface and application process as their Standard Loans. There's no need for a complex process to manage your loan collateral. These Custodied Loans are not subject to the credit risks that come with rehypothecation activities related to Standard Loans.
Another Ledn-exclusive product is B2x loans, a service that combines a Bitcoin-backed loan with the purchase of an equivalent amount of Bitcoin. Once the loan is repaid, borrowers receive both their original collateral and the additional Bitcoin. This feature positions B2x loans not just as a lending service, but also as a tool to increase your Bitcoin position, ideal for those looking to expand their Bitcoin holdings.
Bake
Bake is a lending platform offering crypto loans with a fixed 5% APR and a 50% loan-to-value ratio. Borrowers can use various cryptocurrencies like BTC, ETH, DFI, USDT, or USDC as collateral to borrow DUSD, a stablecoin. The platform features a flexible loan term and includes safeguards like overcollateralization to ensure loan safety. Notable advantages include separated customer deposits, flexible loan duration, and interest charged only upon loan closure. However, drawbacks include a 0.25% deposit fee, limitation to borrowing only DUSD, and a relatively lower LTV ratio compared to other platforms.
Hodlnaut
Hodlnaut mainly offers services for earning interest and savings accounts in cryptocurrency. It doesn't provide direct or instant loans but focuses on tools for earning through crypto. However, currently, users can't fully use the platform because Hodlnaut has stopped all withdrawals, token swaps, and deposits for an indefinite period.
YouHodler
YouHodler is a cryptocurrency platform offering various services, including loans. They accept a wide range of cryptocurrencies as collateral, from popular ones like Bitcoin to many lesser-known altcoins. They offer different loan-to-value ratios, including options at 97%, 90%, 70%, and 50%.
Zengo Wallet
Zengo Wallet is a centralised cryptocurrency service that provides lending tools, available to everyone, including Australians, through its Zengo Earn application. The details of how this service works are not very clear, but it functions more like a staking protocol that offers interest, rather than a quick lending tool. It's important to remember this, as it might not be suitable for everyone's needs.
The Risks of Crypto Loans
In the crypto lending market, like other parts of the crypto world, there are risks to consider. However, it's generally less risky than direct trading. Let's focus on two key risks.
Firstly, understand the implications of defaulting and repayment. If you use crypto as collateral and its value drops, you might need to add more crypto to keep the loan secure. Also, if you default on your loan, your collateral could be sold off. Different lenders have their own rules about this, and it's crucial to know these before you take out a loan.
Secondly, there's the risk of the lending provider failing or shutting down, especially if they're a decentralised app. This isn't uncommon - several well-known crypto lending services have gone bankrupt or insolvent in recent years, like BlockFi and Celsius Network.
To minimise this risk, choose a lender with a strong reputation for transparency and good risk management. For example, Ledn’s Custodied loans are protected from the credit risks in their Standard loan offerings. Often, the lenders that fail are those with poor risk management, leading to financial issues they then try to hide from their customers.
Read more: How to Borrow Against Crypto - Decoding Crypto Loans
Alternatives to Crypto Loans
If you need to access funds but don’t want to take out a crypto loan, there are alternatives:
Traditional Loans
For those who prefer dealing with standard currency, traditional loans can be a more suitable option. They are particularly useful if your money is in fiat form, like Australian dollars.
Staking
If you own certain cryptocurrencies, such as Ethereum or USDC, staking can be a profitable choice. By staking your crypto, you can earn interest, serving as a form of passive income. Typically, this involves locking away your crypto for a set period. Once this period ends, you regain access to your funds along with the earned interest.
Staking is a good alternative if you have a substantial amount of cryptocurrency and don’t need immediate access to your funds, as significant returns from staking might take some time to accumulate.
Qualifying for a Crypto Loan in Australia
There are only a few things you need to take out a crypto loan in Australia.
Credit Checks
Crypto lending platforms in Australia vary in their approach to credit checks. Some might skip traditional credit checks, focusing instead on your digital assets, while others could incorporate credit assessments for risk evaluation, particularly for larger loans.
Digital Assets
Different platforms accept different digital assets as collateral. The most common are major cryptocurrencies like Bitcoin and Ethereum. The required collateral amount varies, often depending on the volatility and value of the digital asset.
Financial Standing and Repayments
Your financial standing still matters. Platforms may review your income, debts, and financial history. Repayment terms, including interest rates and schedules, differ across platforms. Sometimes, offering higher collateral can lead to more favourable loan terms, especially if your financial standing is not strong.
How to take out a Crypto Loan in Australia
Taking out a crypto loan in Australia is straightforward. Here's a brief overview of how to go about it:
1. Choose a Crypto Lending Platform
First, select a crypto lending service, such as Ledn for BTC or ETH backed loans with business purposes.
2. Create an Account
You'll need to sign up and create an account with the chosen lending platform. This often involves providing some personal details and going through a verification process.
3. Deposit Collateral
Crypto loans typically require you to deposit cryptocurrency as collateral. The type and amount of crypto needed will depend on the platform's requirements and the size of the loan you're seeking.
4. Understand Terms and Conditions
Carefully review the loan terms, including interest rates, repayment schedule, and conditions under which your collateral might be at risk.
5. Apply for the Loan
Once you've deposited your collateral and agreed to the terms, you can apply for the loan. Approval processes and times can vary between platforms.
6. Receive Funds
If approved, the loan amount will be disbursed to you, usually in the form of cryptocurrency or stablecoins, which you can then convert to Australian dollars if needed.
Is a Crypto Loan Right For You?
Whether a crypto loan is right for you depends on various factors.
Reasons a Crypto Loan Might Be Right:
- Quick Access to Funds: Crypto loans can provide fast access to capital, often with a simpler approval process compared to traditional loans.
- No Credit Checks: Many crypto loans don't require credit checks, making them accessible even if you have a low credit score.
- Maintaining Crypto Investments: If you believe your crypto assets will appreciate in value, a crypto loan allows you to access funds without selling your investments.
- Potential Tax Benefits: Borrowing against crypto might have tax advantages compared to selling your crypto assets.
Reasons a Crypto Loan Might Not Be Right:
- Market Volatility: The value of your crypto collateral can fluctuate, potentially requiring you to add more collateral or facing liquidation.
- Complexity: Managing a crypto loan can be complex, especially for those not familiar with the cryptocurrency market.
- Regulatory Uncertainty: The crypto market can be affected by regulatory changes, which might impact your loan terms.
Why Use Ledn For Your Crypto Loan in Australia?
With many options available, each offering unique deals, interest rates, and loan terms, it's important to find a lender that aligns with your business needs. Here's why Ledn stands out as a top choice for crypto loans in Australia.
Competitive Lending Rates
Ledn offers competitive lending rates with no hidden fees, making it an attractive option for borrowers looking for transparent and cost-effective loan solutions.
Strong Operational Integrity
Unlike some platforms that have faced operational issues or even bankruptcy, Ledn has a track record of reliability, having never paused client withdrawals.
Proof of Reserves and Asset Security
With an emphasis on asset security, Ledn implements world-class protocols including AES-256 encryption and two-factor authentication (2FA). Moreover, they use qualified custodians like BitGo for asset storage, ensuring the safety of your collateral.
Transparent and Open Communication
Ledn is committed to keeping its clients well-informed. Monthly Open Book Reports allow clients to see how their assets are being used.
Flexible Loan Products
Ledn offers various loan products, including standard crypto loans with a 12.9% APR and a 50% loan-to-value ratio, as well as Custodied Loans. These Custodied Loans provide an added layer of security, assuring clients that their collateral is safely stored and not being lent out.
B2X Loans
Unique to Ledn, B2X loans combine a Bitcoin-backed loan with the purchase of an equivalent amount of Bitcoin, offering both a lending solution and a tool to increase your Bitcoin position.
Ready to get started with a crypto loan?
Crypto loans offer quick approvals, no credit checks, competitive interest rates, global access, privacy, and asset retention, making them an efficient solution for immediate funding without selling your Bitcoin assets. Before applying, assess your financial situation and understand the loan terms, including the Annual Percentage Rate (APR), loan duration, collateral requirements, and fees.
Interested?
Sponsored by 21 Technologies Inc. and its affiliates (“Ledn”). All reviews and opinions expressed are based on my personal views.
