In recent years, cryptocurrency loans have become a popular method of magnifying exposure to crypto markets. The ease of use, a broad selection of supported loanable and borrowable digital assets, and competitive borrowing rates are just some of the hallmarks of Binance’s loan offering.
While I cannot claim I am a very frequent user of crypto loans, I have, on several occasions, taken out crypto loans, which allowed me to pursue investment opportunities that would otherwise be out of my reach.
Read along and find out what Binance crypto loans are all about and how they can be used to your advantage.
What is Binance Loans?
Binance Crypto Loans is a financial service that enables digital asset investors to obtain additional crypto capital by staking their existing crypto assets as collateral. Binance supports a selection of over 60 borrowable cryptos and more than 20 types of coins that can be used as collateral.
Binance provides crypto loans with collateral, which means that for any loan taken out, a user must provide a certain amount of their spot crypto, a type of security deposit, if you will.
While crypto loans without collateral – commonly referred to as crypto flash loans – do exist, I suggest you steer away from such offerings as they typically charge exuberant fees, or aim to defraud their customers in other ways. For more information about the importance of crypto collateral, check our previous article on the topic.
Why you should give Binance Loans a try?
If you are deciding between different platforms and are unsure which one to choose, a strong case can be made that Binance offers the best crypto loan solution in the market. Take a look at the main benefits of Binance Loans listed below and see for yourself.
Competitive interest rates
Crypto lending services have become very popular recently, with both centralized and decentralized finance solutions popping into existence left and right. However, there are few that come close to the low fees offered by Binance.
For example, borrowing $1,000 worth of Bitcoin (BTC) with BUSD costs roughly 0.00624% per day, which is about 2.27% in yearly interest. It is worth noting that, as a rule of thumb, longer loan terms result in higher interest rates. Case in point, Binance charges roughly a 3.60% yearly interest rate when borrowing Bitcoin using a 180-day loan term.
Stake collateral to reduce interest rates
The second benefit of Binance Loans goes hand in hand with the first one on our list. Loans Staking is a unique feature used by Binance that allows users to offset costs associated with borrowed funds. Supplied crypto collateral is used to support the operation of underlying blockchain networks – for example, BNB supplied as collateral, is used to secure the Proof-of-Stake (PoS) blockchain and generate rewards. Said staking rewards are then used to cover some of the interest rate costs.
The same goes for any other collateral asset that supports this feature, not just BNB. You can filter specifically for coins and tokens that support it by navigating to the “Staking” tab when searching for collateral assets.
Binance explains the feature in the following way:
“The collateral assets you use for borrowing will be deposited in a specific crypto wallet to support the operation of the blockchain network, and you will receive corresponding rewards to reduce interest rates.”
Using Loans Staking can result in up to a 100% fee reduction on certain borrowing/collateral pairings.
Flexibility and streamlined repayment management
Another advantage of taking out a Binance crypto loan is the ability to borrow crypto with different terms, ranging from 7 to 180 days. That’s not all, however, as Binance allows users to repay their debt before the loan term expires. This can be very beneficial when the market turns, and users want to offload their debt at opportune times. On top of that, early repayments incur no additional costs.
Cryptocurrency loan data is available in real-time through the Loan Data dashboard. The in-depth chart showcases all loanable assets and their respective interest rates organized by different loan terms. In addition, you can quickly see Initial LTV, Margin Call, Liquidation LTV, and Collateral Limit data for each of the supported collateral assets, along with the borrow limit of all supported cryptos.
VIP Tier Rates
Long-term users of the Binance platform will be happy to find out that the platform-wide VIP program comes into play when using crypto loans as well. The difference between interest rates paid by regular and VIP users can be quite stark – for example, regular users must pay 0.0099% daily interest when borrowing Bitcoin via the 180-day loan contract. Meanwhile, the highest-tiered VIP users pay just 0.0054% for the same product, which is more than a 45% difference in favor of loyal customers.
How have I used Binance Loans to pursue lucrative opportunities?
From this writer’s perspective, Binance Loans shines as a tool to enlarge one’s crypto exposure without requiring one to sell or swap digital assets.
In the past, I’ve repeatedly taken advantage of this opportunity to invest in initial exchange offerings (IEOs) on the Binance Launchpad platform. Similarly, I’ve also participated in Launchpool programs with tokens I’d borrow via cryptocurrency loans.
Without crypto loans, I’d be forced to sell my existing spot holdings to participate in the above-mentioned programs. Since I am very reluctant to part ways with my Bitcoin, I would have most probably steered away from any opportunities that would have required me to do that.
However, with crypto loans, I was able to borrow BNB and BUSD (or any project-specific coin, depending on the IEO/Launchpool campaign) against my BTC.
Since the cost of interest rates was far lower than the returns accrued by farming new tokens, I ended up pocketing nice returns. What’s more, these investments were virtually risk-free.
Earlier this year, I used this approach to participate in Launhcpool and Launchpad programs of successful crypto projects such as Project Galaxy, STEPN, and League of Kingdoms, to name a few.
The same approach can be applied to other passive-income-generating products from Binance’s Simple Earn suite. For example, you could borrow BUSD to earn 8% interest on deposits of up to $1,000 and use the proceeds to offset the costs of the loan.
Obviously, you could also pursue trading in a more direct way with borrowed funds – remember, borrowed crypto can be used whichever way you want. The only requirement is that the funds are paid back upon the expiration date.
How to get a crypto loan on Binance?
To take out a cryštp loan on Binance, you must first register an account and then navigate to the crypto loans section. You can do so by clicking on the button below.
After that, you must pick the cryptocurrency you would like to borrow, decide on the collateral type and loan duration, and enter the borrowing amount.
At this point, it is worth noting that, as a general rule, Binance Loans have an initial LTV of 65%. Binance explains LTV as the “value of your loan to the value of your collateral.” In practice, this means that users are able to borrow at most 65% of the value of their collateral.
After clicking on the “Start Borrowing Now” button, you will be greeted with an order confirmation window populated with all relevant information pertaining to the loan. Click “Confirm” to borrow crypto.
The balance between the collateral’s value and the value of borrowed funds – known as initial LTV – must be maintained at all times. Once the ratio increases to 75%, a margin call is issued automatically, prompting the borrower to top up the collateral asset.
If the collateral is not topped up, liquidation will trigger once the LTV reaches 83%, at which point the system will automatically sell the collateral to repay the loan.
Binance Loans is a platform that is particularly beneficial to investors who require additional short-term liquidity for various investments, ranging from trading to passive-income products. The ability to set aside a certain amount of spot balance to gain access to extra funds is an enticing proposition for experienced traders and crypto newbies alike. Using Binance Loans is a great way to increase the utility of your existing spot crypto holdings by using them to secure instantly accessible funds at low rates with no paperwork required.
David is a crypto enthusiast and an expert in personal finance. He has created numerous publications for different platforms. He loves to explore new things, and that’s how he discovered blockchain in the first place.