Key Points

• Ethereum loans allow you to use ETH as collateral to borrow cash.
• Crypto loans are often used as a tax-efficient way to access liquidity.
• Borrowing requires posting ETH collateral in excess of the amount that you wish to borrow.

Top 3 Ethereum loan platforms for October 2022

Here are our picks for the top lending platforms of October 2022.

Platform	Supported collateral assets	Interest rate range	Origination fees	Loan types offered	LTV Range	Minimum Loan Size	Maximum Loan Size
CoinLoan	BTC  ETH  SOL  MKR  + more	4.95% – 11.95%	1%	Custom repayment options	20% – 70%	$100	$1,000,000+
Nexo	BTC  ETH  BNB  DAI  +more	0% – 13.9%	0%	Credit Line	15% – 90%	$50	$2,000,000
YouHodler	BTC ETH SOL XTZ,+ more	3%-8%	$0	Custom repayment options	50% – 90%	$100	$1,000,000+

CoinLoan

CoinLoan is a platform that features lending and borrowing options, as well as a crypto exchange, and their own $CLT token. The platform gives borrowers the freedom to decide on loan terms between 1 and 36 months, as well as LTVs that range between 20% and 60%.

One of CoinLoan’s big appeals is its support for various fiat currencies such as EUR and GBP, as well as USD-pegged stablecoins like USDC, USDT, and TUSD.

Why borrow with CoinLoan?

• The platform charges no early repayment fees.
• Staking their native $CLT token provides origination fee and loan interest discounts.
• Platform support for borrowing fiat money.

	Tokens Accepted as Collateral	Loan Interest Rates	Origination Fees	Loan Repayment Options	Accepted LTVs	Minimum Loan Amount	Maximum Loan Amount
CoinLoan	BTC  ETH  SOL  MKR  + more	4.95% – 11.95%	1%	Custom repayment options	20% – 70%	$100	$1,000,000+

Start borrowing from CoinLoan now.

Nexo

Nexo is one of the leading platforms in the crypto lending space. They’re known for their rock bottom APR’s that start at 0% — available to members of the highest tier of their loyalty program who take out loans with an LTV under 20%.

Nexo is a global platform available in over 100 countries. Their product offering also includes a cryptocurrency exchange and high-yield crypto savings accounts.

Why borrow with Nexo?

• Nexo has some of the lowest interest rates — starting as low as 0%.
• The NEXO token offers tiered discounts through the NEXO loyalty program.
• The platform has 40+ supported currencies.

	Tokens Accepted as Collateral	Loan Interest Rates	Origination Fees	Loan Repayment Options	Accepted LTVs	Minimum Loan Amount	Maximum Loan Amount
Nexo	BTC  ETH  BNB  DAI  +more	0% – 13.9%	0%	Credit Line	15% – 90%	$50	$2,000,000

Start borrowing with Nexo now.

YouHodler

The YouHodler platform can be used to take out loans in a number of different fiat currencies. This is a good fit for individuals looking to borrow in their native country’s currency without having to trade stablecoins. 

The platform also prides itself on its incredible 90% LTV loans. While most other platforms are well into collateral liquidation territory at 90% LTV, YouHodler is actually issuing new loans at that number.

• Interest Rates: Fixed

Why borrow with YouHolder?

• Very high LTV limit of 90% allows for almost 1:1 borrowing of loan funds to collateral.
• Large catalog of supported cryptocurrencies to use as collateral.
• Loans can be taken out in a variety of fiat currencies including EUR, USD, GBP, and CHF.

	Tokens Accepted as Collateral	Loan Interest Rates	Origination Fees	Loan Repayment Options	Accepted LTVs	Minimum Loan Amount	Maximum Loan Amount
YouHodler	BTC ETH SOL XTZ+ more	3%-8%	$0	Custom repayment options	50% – 90%	$100	$1,000,000+

Start borrowing with YouHodler now.

How do Ethereum Loans Work?

Ethereum loans allow you to use your ETH tokens as collateral to borrow fiat cash in the form of USD or other currencies. ETH loans are primarily used as a tax efficient way to access cash without selling your crypto and incurring capital gains taxes.

Most crypto loans require collateral to be deposited before funds can be loaned out. For Ethereum loans, borrowers deposit collateral in the form of ETH or another cryptocurrency and then take out a fiat loan that represents some percent of that collateral. 

For example, a borrower may deposit $10,000 worth of ETH tokens and borrow $5,000 worth of USD. That $5,000 worth of USD loan balance will need to be paid off before the borrower can receive their $10,000 of ETH collateral back. 

Due to the over-collateralized nature of crypto loans, they do not require a credit check, and many platforms can lend thousands, or even hundreds of thousands, of dollars instantly — so long as the borrower posts the required collateral.

What is an Ethereum Loan?

An Ethereum loan allows you to borrow fiat money from a lender, using your ETH as loan collateral. To get a loan, all you have to do is deposit some amount of ETH as collateral and then take out a loan that does not exceed the value of your deposited collateral.

For example: if you would like to borrow $10,000, you should set aside anywhere between $13,000 and $50,000 of ETH to use as collateral. The more collateral you deposit for your loan, the better loan terms you will get (including a lower interest rate). Keep in mind that deposited collateral remains locked up until the loan amount is paid off.

Tax Benefits

According to the IRS, loan proceeds are not considered income, therefore, they do not incur a tax liability. So far, this logic has also applied to crypto loans, leading many to use them as a tax-efficient way of raising cash without needing to sell crypto.

For example: If a crypto investor starts out with $10,000 worth of tokens that become worth $20,000 during a crypto bull run, the investor may take out a loan against the $20,000 worth of tokens and spend or invest the borrowed money however they wish. 

Of course, the crypto investor may simply opt to sell the $20,000 worth of tokens. However, if they do so, they will incur a capital gains tax on the $10,000 of appreciation. For this reason, taking out a loan, rather than selling, is the investor-savvy way to access liquidity.

What do I Need in Order to Get an Ethereum Loan?

Ethereum loans are available to anyone that can post the collateral required. These loans normally do not have any credit checks, and DeFi loans can even be completed without identity verification.

Borrowers should, however, familiarize themselves with several terms first:

• Loan-To-Value (LTV)
• Margin Calls
• Interest Only vs. Interest & Principal loans vs. Credit Lines

What is loan-to-value (LTV), and how does it affect loan rates?

Every loan is calculated using a loan-to-value ratio or an LTV. The LTV determines how big of a loan you can take out based on the value of your deposited collateral. A loan’s LTV is calculated by dividing the loan amount by the value of the collateral. 

LTV can most easily be understood through an example:

• Let’s say you borrow $5,000 of USD by depositing ETH collateral worth $10,000. Your LTV will be 50% since your loan amount ($5,000) represents 50% of your collateral amount ($10,000).
• If you deposit $10,000 of ETH as collateral and only borrow $2,000, your LTV will be 20%. Alternatively, if you borrow $5,000 using only $8,000 of collateral, your LTV will be 62.5%.

Since crypto prices are volatile, the value of your collateral is constantly in flux. If your collateral’s value goes down significantly, your LTV will increase. If your LTV exceeds a predetermined threshold set by your lender, you may be in danger of having your collateral liquidated in order to pay off your loan.

Margin Calls

As covered in the previous section, your loan LTV determines what percentage of your collateral your borrowed funds represent. Whenever your loan LTV gets too high — normally due to fluctuating crypto prices — your lender may trigger a “margin call.” 

Margin calls are demands from a loan provider that require a lender to either pay down a portion of their loan or to add more collateral. If the borrower fails to lower their loan LTV, the lender may resort to liquidating the deposited collateral in order to repay the loan. 

Most platforms trigger margin calls whenever loans enter the 80-90% LTV range. At this point, the value of the borrowed funds is nearing the value of the deposited collateral, so lenders will require either for the loan to be paid down or for more collateral to be posted. If the borrower fails to repay the loan or post more collateral, the lender will begin to liquidate their loan collateral assets.

Interest-only loans vs. interest & principal vs. Credit Line: How do they compare?

While traditional loans are issued on the faith of the borrower’s creditworthiness, crypto loans are backed up by collateral and can therefore remain outstanding indefinitely. This is beneficial for crypto lenders since they get to charge more interest. In return, many of these lenders provide borrowers with flexible repayment options and the option to select between “interest-only”, “interest & principal”, and “Credit Line” loans.

• “Interest & principal” loans work similarly to traditional loans. Borrowers take out a lump sum and are responsible for paying it back in monthly installments that include paying back a portion of the principal of the loan as well as the interest. These payments are calculated so that some amount of equal monthly payments will, in the end, fully pay off the loan. 
• “Interest-only” loans require the borrower to only pay interest throughout the loan term. At the end of the loan term, however, borrowers are required to pay all outstanding interest + the original principal in a lump sum.
• “Credit Line” services allow a borrower to draw cash up to a pre-set amount at any time. Unlike a traditional loan where the borrower takes out the whole loan all at once, credit lines allow borrowers to take whatever amount suits them and only pay interest on that amount. There are also usually flexible payment terms which allow ongoing payments of varying sizes.

An Example

Interest-only loans have lower monthly payments but usually end up costing the borrower more in the end. Interest & principal loans, on the other hand, require the borrower to keep up with larger monthly payments, but they end up paying less for their loan.

Let’s take a look at an example that contrasts interest & principal and interest-only loans. For our example scenario, we will be taking out a $10,000 loan from SALT Lending — one of our top picks for crypto lending platforms. The loan will feature a 30% LTV and a loan term of 18 months. As you can see below, the total amount owed back is higher with an interest-only loan than with an interest & principal loan.

	Interest & Principal	Interest-only
Loan Amount	$10,000	$10,000
LTV	30%	30%
Loan Term	18 months	18 months
Monthly Payment	$587 each month for 18 months	$58 for 17 months, + a lump sum of $10,058 in month 18
Total Amount Paid Back	$10,563	$11,050

Are Ethereum Loans Taxed?

Taking out a crypto loan is not considered a taxable event. 

Some crypto investors take advantage of this fact and use loans to offset their capital gains liabilities. When their tokens go up in price, rather than selling, they will deposit them as collateral to a crypto lending platform and instead spend the borrowed funds, thus avoiding a tax bill.

What are the common loan terms?

• Collateral: Some traditional loans and almost all crypto loans require a monetary guarantee that the loan will be paid back. This guarantee comes in the form of an asset — known as “collateral” — given to the lender with the stipulation that the asset can be sold if the borrower fails to repay the loan. The value of deposited collateral normally exceeds the value of the loan being taken out.

• Loan term: The length of time for which a loan is taken out. This length is usually, though not always, agreed upon ahead of time. Normally lenders split up a borrower’s debt into monthly, weekly, or daily repayments that pay off the loan within the loan term window.

• Principal: The original amount borrowed when taking out a loan. This amount must be repaid back to the lender — usually with interest.
  
• Interest: The additional charge tacked on to a loan’s principal that must also be paid back in order to repay the loan. Loan interest is normally where a lender profits on their lending services. Interest rates are represented as a percentage of the borrowed amount and can either be variable or fixed. Variable interest rates fluctuate during the loan term, while fixed interest rates are a set percentage that does not change.

• Origination Fee: A fee charged for the service of providing, or “originating,” a loan. This fee is normally charged as a percent of the loan amount.

• Withdrawal Fee: A fee charged for withdrawing assets from a custodian such as a cryptocurrency exchange. These fees incentivize investors to hold their money in the platforms rather than taking them out. 

• Prepayment Fee: Since lenders make their money by charging interest and interest accrues over time, some lenders will charge prepayment fees to discourage borrowers from paying early, thus accumulating more interest on their debt.  

• LTV: Loan-to-value, or LTV, is a measure of a loan’s health. LTV is determined by dividing the value of the loan by the value of the collateral to get a percentage. LTV values over 80% start to trigger margin calls and collateral liquidations.

• Margin Call: When a loan’s LTV gets too high, the lender will usually notify the borrower and request that they either deposit more collateral or pay down a portion of their loan. If the borrower fails to bring their loan LTV down, their collateral may be liquidated by the lender.

What are the risks of borrowing against Ethereum?

All cryptocurrencies, including Ethereum, represent volatile investments. The risk of investing in crypto is especially heightened when a loan is taken out by depositing crypto as collateral. 

Margin Calls: If the price of crypto crashes, the value of the collateral also crashes with it, which may cause margin calls for the borrower or even outright liquidation of their collateral.

Security Breaches: Collateral deposited for loans is stored by the platforms issuing the loan. If these platforms experience a security breach, the collateral may be compromised as well. Crypto loans are not insured by entities like the FDIC, so individuals assume all liability. 

Platform-Restricted Withdrawals: During the crypto crash of 2022, some major platforms froze client fund withdrawals to avoid becoming insolvent. This is a rare and extreme event, however, it’s one that has occurred in the past, and it’s important to be aware of.

Opportunity Cost: ETH now offers staking rewards to the tune of around 4% annual percentage yield (APY). ETH used as loan collateral will be locked up by the lender and therefore won’t be able to be used to earn rewards through staking.

Are there any other fees for Ethereum loans?

Some platforms, like SALT Lending, only charge interest for their loans. This, however, is more often the exception rather than the rule since most platforms charge some origination, withdrawal, or prepayment fees. 

Below is a table with the fees that different platforms charge:

	CoinLoan	Nexo	YouHodler
Origination Fee	1% of loan amount	0%	0%
Withdrawal Fee	0% on all assets except for ERC-20 tokens	Base tier – 1 free crypto withdrawal per month	Depends on the asset
Prepayment Fee	0%	0%	0%

DeFi Loans

While crypto lenders are usually centralized platforms like Nexo and CoinLoan, decentralized alternatives also exist. 

“Decentralized finance” (DeFi) refers to financial protocols that allow crypto investors to buy, trade, sell, lend, and borrow cryptocurrencies without interacting with a centralized platform. Instead, DeFi protocols like Compound and Aave use rules set down in computer code to help investors transact with each other. 

Borrowing crypto through DeFi is as easy as visiting a DeFi protocol that supports the cryptocurrency you are looking to borrow. The funds you borrow will come from other DeFi crypto investors rather than a centralized treasury, as is the case with centralized lending.

Frequently Asked Questions