How To Take A Crypto Loan On Binance

Sell or not sell. Sometimes we face situations where we see ourselves in the need of cash, and a valid option is to sell some of our cryptos.

The tricky part is, that these coins might go up in value over the long term. While you are getting the cash needed, we might miss the opportunity of price appreciation.

But today I bring you another valid option in case of emergency. You don’t have to sell your coins to get access to money, instead, you can take a loan on your crypto.

A crypto loan is a type of secured loan in which your crypto holdings are used as collateral in exchange for liquidity from a lender that you’ll pay back in installments. As long as you make your payments and pay the loan amount in full, you get your crypto back at the end of the loan term.

How it works | The steps:

You choose the coin and the amount you want to borrow.

The interest rate is similar for all of them. I chose BUSD because that’s my go-to stablecoin.

Select your collateral amount & coin.

The collateral is the coin you are willing to lock away to secure your loan. The collateral stays locked until the loan is repaid.

Loan Term

You can go with any time frame you want. Currently, the loan terms are 7, 14, 30, 90, and 180 days.

There is no penalty for early repayment. And you can also renew your loan.

Interest rates

The average interest rate is between 3–4% annual. But it varies depending on the collateral, coin borrowing, time frame, and if staking is available.

There are some coins like AVAX that Binance stakes it for you, and that offset the interest rate. Be aware that not all coins have the staking option.

As you can on the picture above the interest rate amount is offset due to staking. So, in the end, you only have to pay back your loan, free of extra charges.

Initial TLV

LTV is the ratio of your loan to the value of your collateral.

The amount of money you can borrow depends on the worth of your collateral. If you have $1,000 worth of ETH, then you can borrow up to $650 or 65%. Note that not all coins let you borrow up to 65%.

How to Calculate LTV?

LTV = Loan Amount / Collateral Amount * 100%

Loan Amount = Principal + Interests

Example: 1 BTC is equivalent to 7,400 USD on 2020/03/12 09:00 UTC, thus 0.01938571 BTC equals to 143.45 USDT

LTV (%) = 100 USDT / 0.01938571 BTC * 100%

= 100 USDT / 143.45 USDT * 100%

= 69.71%

The lower you can have your LTV the better. If the price of your collateral increases and LTV is at 50% that means your loan is now worth 50% of the collateral instead of 65%. That creates a bigger gap and decreases your chances of getting liquidated. Keep reading, I provide some tips and tricks to lower your LTV.

Margin Call:

You will receive an email saying that you should top up your loan to avoid liquidation

Liquidation:

There are two things that can happen when the price reaches the liquidation level. You can get either partially liquidated or 100% liquidated.

If the price goes down to the liquidation price you get partially liquidated to bring down your LTV. That means, they will sell a few of your coins to partially pay back the loan. That doesn’t mean you are losing your coins. You are just paying back what you owe.

There are various pros and cons when using that strategy, let’s take a look at 2 scenarios. Scenario A decides to take the loan while Scenario B sells his coins.

Scenario A

Let’s say I get 100% liquidated at $1,318.

At that price you will be receiving 0.1920 ETH * $1,318 = $253

Minus what I owe them which is $208.24 + $4.39 in interest (if I get liquidated before 180 them the interest will be less than that).

I get $40. Remember that I already took $208 in cash. So in total, I have made/taken in cash $248.

Scenario B

I don’t take the loan. But instead, when it reaches $1,318 I see myself in a hurry for cash and decide to sell my position.

I get $253 but I don’t have to pay the interest.

So in the end both scenarios are very similar when it hits the liquidation price.

Pros;

If I take the loan and ETH goes up in price then I benefit from price appreciation, and I only have to pay the loan + interest and I can keep my coins.

Cons;

The collateral is locked on an exchange, and after the Celsius fiasco, not everybody feels comfortable leaving their coins on a centralized exchange.

Nevertheless, I don’t think Binance is the same as Celsius. They’ve been here for years and have been through all the ups and downs. Also, they are not a lending business, so I don’t see them going out of business anytime soon. With that said, anything can happen. Make sure you know the risks.

Save money on fees

• Instead of choosing 180 days, you can go with 90 days and pay less interest. If you then think the 90 days are not enough you can always renew your loan.
• Scan through the list to see which stablecoin has lower fees. USDT is a little bit cheaper than BUSD for example.
• Choose a Coin that includes staking to offset the interest rate. The only issue is that the list is limited and currently it is not available for BTC or ETH.

How to avoid liquidation

There are three main tricks I use to prevent liquidation:

1- Take your loan at support levels

Instead of taking the loan at a resistance level, take it at a support level.

If I take the loan at the $1,261 price my chances for a price bounce off that level are higher, and my liquidation price will be under a support level.

But instead, just for the sake of this article, I took it when ETH was at $1600, right under the $1,700 resistance level.

The best thing would be to take the loan at the break of $1,700 so $1,700 becomes the new support or wait for it to be closer to the support level at $1,260.

This tip is handy but you need to know basic Technical Analysis and have the patience to wait until the price gets to the support level.

2- Increase your collateral

Continue with the usual DCA and activate the automatic top-up function, so anytime it is needed they will increase your collateral using your funds and that will drop your liquidation price.

Or do it manually, check the steps below 👇

1. Go to [Wallet] — [Futures].

2. Scroll down and click [Collaterals] to see all your collaterals. Click [Adjust LTV] next to the collateral you want to adjust.

For example, the LTV level is 43.88% for BTC.

3. Choose [Add] if you would like to lower your LTV ratio. A lower LTV ratio represents a lower risk. Fill in the amount of collateral you would like to top up. A new LTV ratio will be shown. Click [Add Collateral] to confirm.

4. Your LTV ratio is now lowered to 32.73% as you have added more collateral to your account.

5. You may remove some collateral amount out of your account by choosing [Remove]. Fill in the amount you would like to remove and click [Remove Collateral] to confirm.

6. The latest LTV ratio is increased to 44.21% after removing the collateral amount from your account. Please monitor your LTV ratio level proactively to avoid liquidation of collateral during extreme price movement.

3- Choose a coin with less price fluctuation

The smaller the cap of a coin the quicker it can move up or down.

Bitcoin fluctuates less than Ethereum so your chances of getting liquidated are lower when you use Bitcoin as collateral.

But I do understand that this is not valid for everybody because you might have your funds invested into another coin. If that is the case then take into consideration tips 1 and 2.

Conclusion

Taking a loan will always have some risks associated, and understanding all these concepts can be kinda hard at first. What I like to do when I found myself testing a new feature is I like to use a very minimal amount of money to try it out and fill my doubts.

$100 is the minimum loan acceptable on Binance, so I would first try that before moving to bigger amounts.

If there is any way that I can help you, feel free to reach out;

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Disclaimer: This is not financial advice, I am just a guy with a laptop sharing his opinions and experience. This is for entertainment purposes only. Always Do your own research before investing.