What are the 6 important questions to ask while taking a Crypto-Backed Loan?
The world of cryptocurrency is vast and can often be seen as daunting to newcomers. In order to navigate the waters of cryptocurrency and blockchain technology, investors must first truly understand and seek comprehensive knowledge in the respective fields and learn to stay clear of pitfalls. This is even more relevant with respect to crypto-backed loans, as the space is largely unregulated. This gives rise to the incidence of scam artists who will take every opportunity to con and dupe novices. However, with enough research and due diligence, investors can come out on the other side victorious and transfer their assets to safe havens instead. Here are some important questions investors should ask before deciding on a crypto-backed loan to check for its legitimacy and whether it is the right one for them to consider:
1. Can the loan be modified to suit specific needs?
Loans granted by financial institutions are highly standardized in nature, whereas loans granted by crypto lenders often have the feature of being modified as per the convenience and requirements of the parties to the transaction. Various features of the loan contract such as the LTV ratio (Loan to Value), duration, initial and maintenance margin can be negotiated and agreed upon before the contract is initiated.
2. What are the interest rates being charged?
Traditional lenders tend to charge enormous rates of interest on loans in most countries, especially those that are backed by risky assets. However, crypto-backed lending aims to rid this problem by charging reasonable and equitable rates of interest in order to conduct business in a fair and efficient manner. Hence, it is important to find lenders who conduct themselves in this manner and maintain their clarity and transparency on the rates of interest that they charge.
3. How safe is it to take the loan?
Cryptocurrency operates on the blockchain protocol where transactions are highly encrypted and secure. Questions on the security of transactions do not arise as much as those regarding the credibility of the lender itself. It is important for an investor to conduct thorough research and investigation in regards to the details of the lender. Investors must check for the integrity and quality of the lending platform in order to ascertain whether the organization is reliable for lenders to entrust their cryptocurrency to.
4. How transparent and reliable is the lender?
Large institutions often include hidden fees with clauses in fine print or in complicated legal terms in loan contracts. This aspect has, time and again, proven to be a massive burden to borrowers thereby ruining their faith in the system — as these charges often give rise to financial problems for borrowers. They must thoroughly read the terms and conditions of all contracts involved, and should preferably have a lawyer ratify them before making a decision to obtain the loan.
What are the other important questions to ask while seeking a loan? Continue reading on our blog for all the questions. Link to our blog can be found here.
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Bank of Hodlers is a Blockchain based firm that provides services in terms of ensuring security against Crypto thefts, providing Crypto credit cards and Crypto backed loans.
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This article was written by our Guest Writer, Noah Adrian Burges.
