Mistakes One Can Make While Seeking a Crypto-backed Loan

“I’m only human”, is a statement made by people soon after making a mistake. The reason this quote so appropriate for such a situation is because all humans, no matter who, are prone to making mistakes.

That doesn’t, however, mean that we shouldn’t try to avoid making mistakes to the best of our abilities. While making mistakes is essential for our growth, it is equally (If not more) important to learn from those mistakes and ensure that we never repeat them. Learning from our mistakes makes us more aware of ourselves, and the whole cycle is an essential part of the human experience.

Crypto-backed Loans

Generally, we tend to make mistakes while being presented with an idea or concept that is new. Falling from a bicycle is a classic example – only when we fall do we realize what needs to be done in order to correct our previous errors and, in this case, enjoy a bike ride.

In the digital world of finance, particularly in the blockchain and cryptocurrency domain – cryptocurrency loans or crypto-backed loans are the newest products for the majority of people who encounter them. Metaphorically speaking, we are in the stage of early infancy in regards to the cryptocurrency revolution where the aspect of crypto-backed loans is a relatively recent phenomenon – but one that is gaining more momentum with each passing day.

Crypto-backed loans have their basis in collateralization where they can be only availed by people who have sufficient assets to back the loan amount, in this case – hodlers who hold cryptocurrencies which can be considered as assets. These loans are easy to avail as long as a person seeking them has enough cryptocurrency to be used as collateral against the loan. There are no fiduciaries in the form of intermediaries, and background checks on creditworthiness and loan history are almost zero to nil.

Unsurprisingly though, as amazing as crypto-backed loans are, one needs to observe discretion while availing them or they stand to lose their crypto resources. Given that this is a volatile and relatively young space, it’s easy to make mistakes while taking these loans. This article exists to create awareness for people by highlighting the mistakes that can happen, and how people can avoid them.

Here are some horrible mistakes people make (or could make) while taking Crypto-backed Loans

1. Improper market research prior to taking a crypto-backed loan

This is the most obvious thing one must do before taking any type of loan. People often skip this step when being presented with an opportunity to get an instant loan – which crypto-backed loans usually can also be.

One must know – exactly how much their crypto assets are worth, their volatility in the market, and the original amount that they invested in them; before taking a crypto-backed loan.

2. Trusting Loan providers without doing a proper check

The onset of crypto-backed loans becoming extremely popular in the hodling community has resulted in an array of crypto-loan providers popping up. Even before borrowing a single penny, hodlers must do a proper check on lenders to verify their legitimacy – in terms of their low interest rates and extended repayment durations – factors that can be used to entice people and trick them into scams which can cost borrowers a significant amount of their crypto assets.

3. Being unaware of the exact terms of Repayment Overdue

Perhaps the biggest and most frequent mistake that people can make when it comes to seeking crypto-backed loans is not knowing exactly when their payments are overdue in terms of repayment. In this regard, crypto-backed loans largely differ from their conventional counterparts.

Unlike banks that usually have a linear policy when it comes to late repayments on loan amounts, crypto-backed loans differ since there are no official regulations on these loans. Every lender can decide on their own terms and conditions regarding lending and loan reimbursement. As a result, one needs to seek out the terms and conditions and know the exact penalty for defaulting on the loan amount or late repayment – well beforehand.

4. Selling Cryptocurrency instead of taking a Crypto-backed Loan

This isn’t exactly a mistake that people make when it comes to crypto-backed loans but it needs to be addressed, nevertheless. The state of the current crypto market is extremely volatile, and a lot of people have major investments in cryptocurrencies that aren’t doing very well. This may compel people to sell their cryptocurrencies in exchange for fiat money but this can prove to be a huge mistake as these currencies have the potential to appreciate in the long run, and exceed the previous peak values.

Conclusion

Crypto-backed loans are proving to be a significantly better option for a lot of hodlers, even though hodlers must exercise a fair amount of discretion while taking them. Keeping in mind the long run, one must seriously consider availing a crypto-backed loan over selling their crypto-assets.

To know more about Crypto-backed loans and why they are awesome, check out our Ultimate Guide to Crypto-backed Loans


What are your thoughts on taking loans backed by crypto-assets? Do you think they are a viable option over selling your crypto-assets? Let us know in the comments section below.

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