I'd like to understand these crypto loans.

[Poker Player]

I knew this part of the forum existed but recently realized that the interest rates are quite high. I have some doubts and I would appreciate it if you could help me clarify them.

(Incidentally, I am not 100% sure if the thread belongs here, as it is a meta-question about lending services in the forum. If you are sure it belongs elsewhere, let me know and I'll move it).

Since interest rates here are usually significantly higher than those of traditional banking, I can think of several reasons why people might take out these loans:

1) That they live in a third world country and have no access to credit.
2) That they receive all or most of their income in Bitcoin, and therefore banks won't give them credit either as they require a fiat payroll for it.

But from there, I don't really understand why people are willing to pay such high rates. Especially when I see people borrowing (or trying to borrow) $10 or $30, which sounds to me like gambling, extreme poverty, or ruinous management of their finances, which should not be lent to them because of the high risk of not getting paid back. What other reasons are there?

From the lender's point of view, I suppose there are two reasons for charging those interest rates:

1) The volatility of crypto. You lend x crypto today to be paid back in 6 months and the price (fiat equivalent) in 6 months may be significantly lower. This would not be such a problem if you only lend Bitcoin (or only Bitcoin and stablecoins) and you are a Bitcoin maximalist, who believes firmly that Bitcon price will continue to rise in the long term.
2) Risk of default, especially on uncollateralized loans (for people with great reputations on the forum). Even if people put their account on the line, it's not like if someone takes a loan from a bank where they have their payroll domiciled and the bank knows they have assets they could seize in case of default.

I don't know if I'm right on this too or there are other reasons.

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[shasan]

What other reasons are there?

You have to buy medicine or something else but you have no fund right now and you will get your salary after few days. In this case you need a loan. But for a short term loan and little amount is not possible from bank as a result have to take loan at high interest.

[examplens]

you can't look at everything just through a black and white picture. you also can't imagine what happens to others in life and what problems they deal with. In many cases, money will not resolve their problems but it can alleviate them.

I will give you a few examples where you can ask for a loan even if you have money. Maybe you have open order positions and you don't want to sell with loss, maybe you have locked assets on some period and you can't access this fund for a while, maybe you are out of your wallets but you still need money urgently to finish some things or maybe you just want to do something a little earlier than the earnings will come.
I guess people earn here some money, and it is their extra income through hobbies so they want to turn it into something tangible sooner.

About the high-interest rate, everything is from the point of view of the observer. ask lenders is it high or it can be a little bit higher. As I know (from real life) interest rate depends on credit security. So if they with high risk, then probably interest rate must be higher. which is on the forum certainly with a dose of great risk. You can see that all loans with collateral always have the lowest interest rate just because they are secured.

[NeuroticFish]

I don't really understand why people are willing to pay such high rates

Actually there are more sub-cases to be taken into account.

* Those who get this kind of loans and do have proper collateral.
* Those who have the rank, trust and good lender who gives them no-collateral loan.

Indeed, when one has the proper collateral, getting such a loan is a mystery to me.
If one doesn't have to have the collateral, it can be understood. There are quite a number of use cases one expects a payment rather soon (signature, bounty, service, name it) and need urgent money. And in many countries 30$ can solve a lot of urgent problems.


I'll add one more use case too: trust feedback. Loans, like other "business" relations, are subject to trust feedback. While some people use neutral feedback for that, some are still generous with positive feedback.

[Taskford]

I live in a third-world country, and we also have a local lending section with a monthly interest rate increase of 10%, regardless of whether you borrow fiat or crypto. And I can say that a few of my acquaintances in our local section have mentioned how convenient it is to get an immediate loan for whatever important reason. So, perhaps a high interest rate is just a way to compensate for short-term small loans.

But I guess, a 10% increase is really not difficult to have for repayment as long as the 2-parties involved are aware that the borrower has the means for repaying the loan.

[Poker Player]

You have to buy medicine or something else but you have no fund right now and you will get your salary after few days. In this case you need a loan. But for a short term loan and little amount is not possible from bank as a result have to take loan at high interest.

Well, if that were to happen to me, I would pay by credit card and then they would charge me when I collect my paycheck. If it's only a few days, I might even get charged a month later, since credit cards usually have a cutoff day. For example, if I pay between the 27th and 31st of this month, I will be charged in February.

I could also take out an online instant minimum amount loan and amortize everything except what I need, and then amortize the rest when I collect the paycheck, so I would pay very little interest, only for the amount of the medicines and prorated for the few days I had the rest, but I understand that not everyone has the same banking conditions that I have.

you can't look at everything just through a black and white picture. you also can't imagine what happens to others in life and what problems they deal with.

Just a point, if I have opened the thread, it is precisely to see other points of view and try to understand other perspectives and life situations in which people who ask for these loans find themselves.

* Those who get this kind of loans and do have proper collateral.
...
Indeed, when one has the proper collateral, getting such a loan is a mystery to me.

I have not investigated the matter thoroughly, and I do not know if in all cases the loans with collateral are given if you give 100% of the collateral or there are cases where the collateral covers only 50% for example. In the second case it would make more sense. In the first case, it can happen like in banking that let's say you have $10K in an investment in the bank and suddenly you have to make an urgent reform at home (the roof falls down or something like that) that let's say it is going to cost you $10K. One option would be to sell the investment and pay but sometimes it is smarter to keep the investment and take the loan if it is low interest. If you get the loan at 4% and it is clear to you that your investment gives you significantly more than that (like an S&P fund that averages 10), it is smarter to take the loan, although here you would have to take into account market volatility, whether you have a stable income and other factors.

Applying this to crypto loans, I do not know if there will be any similar case of leaving the collateral and taking the loan because you do not want to get rid of the investment, because the interest is higher, but I guess that by leaving 100% collateral the interest would be in the lower range within the crypto loans.

I live in a third-world country, and we also have a local lending section with a monthly interest rate increase of 10%, regardless of whether you borrow fiat or crypto. And I can say that a few of my acquaintances in our local section have mentioned how convenient it is to get an immediate loan for whatever important reason. So, perhaps a high interest rate is just a way to compensate for short-term small loans.

Of course, that's one of the things I figured and said in the OP, that I assumed one of the cases is people from third-world countries. Still, the only sense I see in it is to pay back the loan as soon as possible, otherwise the interest eats at you.

[DarkStar_]

You have to buy medicine or something else but you have no fund right now and you will get your salary after few days. In this case you need a loan. But for a short term loan and little amount is not possible from bank as a result have to take loan at high interest.

Well, if that were to happen to me, I would pay by credit card and then they would charge me when I collect my paycheck. If it's only a few days, I might even get charged a month later, since credit cards usually have a cutoff day. For example, if I pay between the 27th and 31st of this month, I will be charged in February.

I could also take out an online instant minimum amount loan and amortize everything except what I need, and then amortize the rest when I collect the paycheck, so I would pay very little interest, only for the amount of the medicines and prorated for the few days I had the rest, but I understand that not everyone has the same banking conditions that I have.

Emphasis mine. From what you've said, I'm going to guess that you're based in the USA. I think it's important to realize that banking conditions in other countries can be very very different from what you might expect. A statista survey (not sure how accurate it is) reported that less than 3% of adults in the Philippines have a credit card. For comparison, over 70% of adults in the USA have a credit card. I think it's reasonable to assume that credit cards/instant online loans are much less prevalent in many other countries.

Indeed, when one has the proper collateral, getting such a loan is a mystery to me.

I think leverage might be a big one. You could provide an altcoin as collateral, and then use the borrowed money to buy more of that altcoin if you wanted to take a long position. Many exchanges do offer something similar (at lower rates), but not all altcoins are available that way. There is a reason that collateralized loans are very very rare though.

[LoyceV]

I don't really understand why people are willing to pay such high rates. Especially when I see people borrowing (or trying to borrow) $10 or $30, which sounds to me like gambling, extreme poverty, or ruinous management of their finances, which should not be lent to them because of the high risk of not getting paid back. What other reasons are there?

I can think of a few reasons: some don't plan to pay it back at all, and some may hope to gain positive feedback from paying back. And even if they get only neutral feedback, they can build it up from small loans, and use those repaid loans to get larger loans. Even if they didn't plan it from the start, I've seen it end in exit scams once the amount got high enough.

It could also be they've maxed out all cheaper options (banks, creditcard, family) already, and (as we would say in Dutch) fill one hole with another.
I've seen several defaulted loans after Bitcoin went up about 10 fold. Especially if someone is borrowing money he can't really afford, it becomes impossible to pay back after this increase.

Indeed, when one has the proper collateral, getting such a loan is a mystery to me.

It's basically gambling on some altcoin to go up, while they need the money. People IRL use stock as collateral for a (mortgage) loan too.

a few of my acquaintances in our local section have mentioned how convenient it is to get an immediate loan for whatever important reason.

If only they'd discover how convenient savings are! They'd never have to pay 10% interest again, and be much better off in the long run.

[shasan]

And even if they get only neutral feedback, they can build it up from small loans, and use those repaid loans to get larger loans. Even if they didn't plan it from the start, I've seen it end in exit scams once the amount got high enough.

I agree with you in this point and I have seen several cases as you have mentioned. https://bitcointalk.org/index.php?action=profile;u=381490 this person tried to took loan from one person and latter took from both person with higher amount. The amount was increasing time to time and finally took two loans from 2 different lenders and finally went off as scam exit.

[icopress]

I'll add one more use case too: trust feedback. Loans, like other "business" relations, are subject to trust feedback. While some people use neutral feedback for that, some are still generous with positive feedback.

I confess I do not remember what was the turning point and when the unspoken rule regarding neutral tags in the lending or currency exchange section began to apply, but I think that this happened due to the fact that all lenders are DT in one way or another.

You know perfectly well without me that any forum member has the right to leave positive feedback for any reason, but if the lender does not want the feedback left by him to be perceived with skepticism by others (especially when there is a lot of this kind of feedback), he must abide by these unspoken rules (using neutral feedback as a note of a successful transaction).

To this we can add the fact that the leading creditors of the forum (if I may put it that way) are well aware that in their hands neutral feedback is only a tool that forces others to exercise due diligence. Although I believe that really large loans are an exception, because it is unlikely that any of the lenders would risk their bitcoins if this or that user had not been verified for years.

I would not say better ... 

If Neutral can do the job, don't use Negative or Positive.

[examplens]

I'll add one more use case too: trust feedback. Loans, like other "business" relations, are subject to trust feedback. While some people use neutral feedback for that, some are still generous with positive feedback.

I confess I do not remember what was the turning point and when the unspoken rule regarding neutral tags in the lending or currency exchange section began to apply, but I think that this happened due to the fact that all lenders are DT in one way or another.

You know perfectly well without me that any forum member has the right to leave positive feedback for any reason, but if the lender does not want the feedback left by him to be perceived with skepticism by others (especially when there is a lot of this kind of feedback), he must abide by these unspoken rules (using neutral feedback as a note of a successful transaction).

borrowing money is a very delicate matter, and it was certainly always useful to know whether someone had repaid the loan or not.
As I know, in one moment scammers start to ask for loans and repay them on time. Using this method to build a positive reputation, thus creates a basis for fraud in a much larger amount.

[UserU]

Looks like this thread is almost 1 month old but I'll give my input since I took on a loan previously.

It was to take advantage of some stablecoin deposit bonus offered by a custodial wallet. Once it activated, I couldn't withdraw for 30 days.

I had no stablecoin but with BTC as collateral in the same wallet, I thought it was simply easy to simply offer it in exchange for the stablecoin. So I took a loan and thought it would be easy as pie.

Boy, was I wrong. In fact, my BTC withdrawal affected the promo, meaning that I had to make another deposit to cover the threshold and start the 30-days countdown. Despite having sufficient BTC to cover the loan extension, I couldn't withdraw it as doing so would void the promo.

Lender simply refused to entertain my request (which was to return lesser BTC in exchange for more stablecoin after the tenure runs its course) despite my reasoning, leaving me with no other choice but to purchase USDT on an exchange and paying a hefty withdrawal fee.

Like you said, the interest rate and the inflexibility of some lenders took a huge cut into my profit. Learned my lesson there.