Bitcoin is the mainstream cryptocurrency that is accepted worldwide although it can be operated online only. None of any country, government or financial institution can control it. For this reason, BTC is a 100% decentralized asset. It means that all transactions in Bitcoin take place without any involvement of third parties. The blockchain is an electronic ledger that keeps the record of each and every operation where Bitcoin takes part. Every user has an access to this ledger. Now, let’s dive into the process of borrowing cash using BTC.
If we speak of some baseline features, Bitcoin loans work actually in the same way as conventional loans. You borrow money that you need to pay back within a given timeframe. In this case, you provide Bitcoins to a lender in form of caution money. The loans include fees, interest rates, and other features that are common for traditional types of loans. The steps of getting a BTC loan are as follows:
1) Choose a lender online.
2) Apply for a loan.
3) Submit required documents and info.
4) Sign an online agreement with the lender.
5) Provide a particular amount of BTC as caution money.
6) Proceed with regular payments including interest rates and fees.
This is where all possible common features with traditional loans end. You should keep in mind that BTC is not affiliated or controlled by any financial organization or government. It means that all actions by the agreement will be regulated by the terms established by the lending platform. Once you have agreed with those terms, you need to follow them directly.
Bitcoin lenders differ from traditional platforms and institutions available for borrowers. They do not review the applicant’s credit score. They are mainly focused on user’s online representation. Such platforms have their own instruments and algorithms that determine whether you are worth providing a loan or not. BTC lenders do not care about your previous credit history or other aspects related to your financial story. It may seem to be a good advantage in favor of a new financial tool.
As well as payday loans, BTC loans do not require too much involvement if compared with visiting a bank or applying for a conventional loan. However, it does not mean anyone can get approved. An applicant should meet some of the fundamental requirements:
– An applicant should have a residence in the country where he or she applies;
– An applicant should have a steady salary and job;
– An applicant should have a trust score high enough to get a loan;
– An applicant should have a checking or banking account that is still valid;
– An applicant should not be under 18.
After we have learned the steps and requirements to get a Bitcoin loan, let’s review some of its major pros and cons.
If compared with any other currency or conventional payment platform, BTC loans deliver some great advantages out of the box. The following make BTC loans look like a good borrowing proposition:
– Your credit score does not matter. People with any credit history have high chances to get a loan. BTC platforms use other criteria to evaluate applicant’s creditworthiness, which reserves a good chance to get necessary cash;
– Cross-Border Lending. While BTC is not regulated by any of the existing government or financial establishment, you can look for the best terms and lowest interest rates abroad. You are not limited to one and only country, although you still need to have a state of residence;
– No Banking Account Required. You are not obliged to have a valid banking account. You can use other ways to get cash. The payment options may vary from lender to lender. Choose the platform that suits you most. For this reason, BTC loans are more flexible if compared with conventional lenders.
As an evolving cryptocurrency, Bitcoin offers advanced technological solutions to the financial market. For borrowers, it means flexible opportunities to get the necessary cash and cope with any budget emergencies.
Despite all benefits, BTC loans are not as good as they may seem. The cryptocurrency exchange rate is far from being stable. It means huge potential risks for borrowers in the future. The slightest rate change may lead to enormous financial losses. For this reason, payday loans look like a safe and more secure way of getting necessary cash for a short term. At least, you are 100% protected from any unexpected exchange rate movement. As for other Bitcoin loans disadvantages, they are as follows:
– No Tax-Friendly Strategy – BTC does not have any governmental background. It means that the asset is decentralized. Each lender has a right to establish its own interest rates and fees. For borrowers, such approach is hardly a bargain;
– Inability to Hedge Risks – lenders still do not have effective instruments to hedge against possible BTC drops that can be catastrophic to both borrowers and lending platforms;
– BTC Lending Scams – opting for online services always involves the risk of fraud. Moreover, blockchain technologies are far from being 100% safe. It means that a borrower is not fully vetted.
Make sure you understand the risk and have a clear vision of all fees and rates you will have to pay out before applying for a loan. If you want to prevent the slightest risk of financial loss, you’d better opt for payday loans. They are still the best way to deal with budget emergencies on the short run.