As cryptocurrency continues to grow in popularity, more and more people are trying to join in on the digital currency craze. Bitcoin prices were at an all-time high in November 2021, and although prices have fallen significantly since then due to soaring inflation, prices are still high and rising at $44,250.
With these high prices and cryptocurrency being such a sought after commodity, some have turned to taking out loans to buy the digital currency or even take out mortgages. While it may be tempting to take out other loans to be part of this investing phenomenon, borrowing money you don’t need and may not be able to repay is never a good idea. good idea.
Can you get a loan to buy cryptocurrency?
Personal loans can be used for a wide variety of purposes. If you intend to take out a personal loan to purchase cryptocurrency, you should check each lender’s guidelines to see if they specifically prohibit the use of loans for this purpose.
Unless otherwise stated, most lenders allow you to take out personal loans for anything you want as long as you meet the eligibility requirements. If you’re looking for a loan to buy cryptocurrency, check out the rates for the best personal and home improvement lenders.
Since cryptocurrency is relatively new, most lenders do not specifically prohibit the use of loan money for this purpose. Many lenders also don’t ask what you are using the money for. If you find a lender who doesn’t care what your loan is for, you can apply for a personal loan online and use the money to buy cryptocurrency.
Can you borrow against cryptocurrency to buy more cryptocurrency?
It is possible to use your digital currency as collateral to buy more cryptocurrency through crypto lending. This is the process of taking out a secured cryptocurrency-backed loan through crypto lending platforms like BlockFi and Nexo.
Crypto loans have a few advantages, including low interest rates, choice of loan currency, fast funding, and no credit checks. However, placing cryptocurrency as collateral is extremely risky, as cryptocurrency can be volatile and the value of your assets could drop significantly. This puts you at risk of defaulting on your loan and owing much more than you originally borrowed.
There are also other risks and inconveniences, including variable repayment terms and asset eligibility, as well as the inability to access your currency used as collateral during the term of the loan.
Is borrowing money to buy cryptocurrency a bad idea?
Whether you are considering taking out a regular loan to buy cryptocurrency or looking to take out a crypto loan to buy even more digital coins, taking out a loan for an uncertain investment is extremely risky.
You agree to make payments and pay interest on a loan no matter what happens to the value of your cryptocurrency. Because the cryptocurrency market is unregulated and volatile, you could lose money or struggle to break even on loan repayments. Crypto loans are just as risky, if not more so, given that you cannot access the cryptocurrency you have pledged for the duration of the loan.
In many ways, using a loan to buy cryptocurrency is similar to getting a loan for gambling. You cannot guarantee that you will make a profit from cryptocurrency, but you will still have to pay the loan. If you plan to repay the loan with profits, you may not be able to do so. If you lose money overall on the cryptocurrency, you may not be able to make payments on the loan. Not being able to make loan repayments will usually come with significant fees and a significant impact on your credit score.
In general, you should only buy cryptocurrency with money you can afford to lose. You shouldn’t buy it with a loan or credit card that could put you at risk if you can’t make payments.
The bottom line
It is never advisable to take out a personal loan or borrow money of any kind to invest in cryptocurrency. While the digital coin is a hot commodity right now and can be very profitable, it is an extremely volatile market. You could get into serious debt trying to play the market with money you don’t have.
If you want to get into cryptocurrency, it’s important to do your research and only invest with money that you can afford to lose if things go wrong.