Crypto Loans Explained: Types, Costs and How They Work

A crypto-backed loan lets you access funds without selling the collateral at the outset. That can help fund a defined expense while retaining Bitcoin price exposure, but interest accrues and a falling collateral price can lead to liquidation. The useful question is not simply whether you can borrow; it is whether the loan and repayment plan fit the expense.

Explore Ledn’s Bitcoin-backed loan terms →

Crypto loans let you unlock the value of your digital assets without selling them. They can support a range of needs, from smaller loans for everyday expenses, like groceries or rent, to larger loans for starting a business or refinancing debt.

In this guide, you’ll learn:

• What crypto loans are and how they work.
• The different borrowing models and the rights attached to collateral.
• How to apply, manage collateral, and avoid common risks.

Whether you’re looking for liquidity or want to explore the benefits of crypto-backed lending, this guide has you covered. 

What is a Crypto Loan?

A crypto loan lets you borrow money, such as fiat currency (eg, USD), by using your cryptocurrency (eg, Bitcoin) as collateral. You pledge your digital assets to secure the loan, similar to how traditional loans use cars or homes as collateral. This way, you access cash while keeping your crypto for potential future gains.

This differs from borrowing cryptocurrency itself, where you take out crypto tokens like Bitcoin or Ethereum. Those loans are typically used for trading strategies or earning passive income and must also be repaid with interest.

The blog will focus on using your crypto as collateral for a loan.

Read more: What are Bitcoin Loans, and How Do They Work?

The currency you owe changes the risk

Imagine two hypothetical borrowers. One owes $10,000 secured by BTC. The other owes an agreed quantity of BTC, while earning income in dollars. A rise in BTC's dollar price can make the second borrower's repayment more expensive in dollars; the first still owes a dollar-denominated balance plus its applicable charges.

A fall in BTC creates a different problem for the first borrower: the collateral may no longer provide enough cover under the loan's LTV rules. “Crypto exposure” therefore does not describe one uniform borrowing risk.

Before choosing a product, identify the loan currency, repayment asset and collateral separately. The correct comparison is between arrangements that provide the same usable funding, not two products sharing the word “crypto.”

How Do Crypto Loans Work?

Crypto loans let you use your digital assets as collateral to access liquidity without selling them. Here’s a step-by-step guide to how they work:

Choose a Lending Platform

Compare providers against the asset you hold, usable proceeds, total cost, custody rights and repayment plan. A native-BTC holder who needs bank dollars has a different requirement from someone borrowing a token for an on-chain transaction.

Read more: Crypto loan platforms compared

Understand collateral custody and reuse

Pledging an asset as security is hypothecation. Rehypothecation describes a further use or pledge of that collateral; it is not synonymous only with lending it out to earn yield. Read the agreement to establish precisely which uses are permitted.

Technical custody: identify who holds keys, who can authorise transfers, and how collateral is released after repayment.

Legal rights: identify permitted re-posting, lending for yield, segregation and insolvency treatment. An asset can remain in custody while supporting a restricted funding arrangement.

Read more: Rehypothecation in Crypto Lending - A Simple Guide

Check Interest Rates and Terms

Crypto loans may have fixed or variable rates:

Fixed Rates: Stay the same throughout the loan term.

Variable Rates: Adjust based on market conditions.

Review the repayment schedule and any fees. Loan terms can range from a few months to several years.

Apply for the Loan

Submit your application and assess the offered LTV. At 50% initial LTV, the collateral must be worth twice the principal borrowed. A higher LTV leaves less buffer for price declines; it does not establish the interest rate by itself.

See what you could borrow with this Loan Calculator.

Deposit Collateral and Receive Funds

Once approved, deposit your cryptocurrency as collateral. Funds are then paid out in fiat or stablecoins 🙌.

Make Repayments

Follow the agreed repayment schedule. Some platforms allow early repayment without penalties, which can save on interest. Payment terms may vary. Some require monthly payments, while others expect the full amount at the end of the term.

Monitor Collateral Value

Crypto values can fluctuate:

If the value drops: You may face a margin call, requiring more collateral or partial repayment.

If the value rises: Some platforms allow you to withdraw excess collateral or increase your loan.

Repay and Retrieve Collateral

Once the loan and all fees are repaid, your collateral will be returned. If you default, the platform may liquidate your assets to recover the debt.

Check Tax Implications

Borrowing and selling are different transactions, but tax treatment depends on jurisdiction and circumstances. A collateral sale, including liquidation or repayment using BTC, may be a taxable disposal. Have a qualified adviser assess your intended arrangement.

Illustrative crypto loan calculation

Collateral: 1 BTC worth $100,000

Loan-to-Value (LTV) Ratio: 50%

Loan Amount: $50,000

Loan Term: 12 months

Illustrative annual simple interest rate: 8% (not a current Ledn quote)

Simplified repayment calculation:

Principal: $50,000

Annual Interest: 8% of $50,000 = $4,000

Total Repayment Amount: $50,000 + $4,000 = $54,000

If budgeted evenly over 12 months: $54,000 ÷ 12 = $4,500 saved per month

This is a simple-interest, end-of-term example, excluding fees and changes in balance. Setting aside $4,500 monthly would fund the illustrative $54,000 obligation; it is not an amortising-loan payment calculation or Ledn repayment schedule. Ledn's standard loan has no required monthly payments, but accrued interest and principal still need to be settled under its terms. A falling BTC price can trigger liquidation before maturity even if you intend to repay on time.

Types of Crypto Loans, Explained

Read more: How to Borrow Against Crypto - Decoding Crypto Loans 

Collateralized Crypto Loans

These are the most common type of crypto loans, requiring you to pledge your digital assets as collateral. The loan amount is typically a percentage of the collateral's value.

Uncollateralized Crypto Loans

Also known as unsecured loans, these do not require collateral. They are riskier for lenders, so often come with higher interest rates.

Read more: Crypto Loans Without Collateral - The Complete Guide

DeFi (Decentralized Finance) Crypto Loans

DeFi loans use smart contracts to manage lending positions. On-chain balances and market rules can be inspectable, but interfaces, collateral tokens, oracles and governance introduce dependencies. Costs are market-specific: DeFi is not always cheaper than a direct lender.

Read more: Cefi vs Defi - Key Differences Explained

The Benefits of Crypto Loans

Crypto loans offer several advantages, including:

Rapid Liquidity

Crypto loans are a way to access cash or other cryptocurrencies without the need to sell your digital assets. This allows you to keep your digital asset collateral while still meeting liquidity needs. 

Speed and Ease

Collateral-based borrowing can avoid a traditional income-and-credit underwriting process. Funding still depends on verification, collateral receipt, approval and the payment route. Blockchain transfers, banks and compliance reviews have different operating constraints, so allow time for each rather than assuming instant funding.

Competitive Rates

Collateral can make a loan competitive with some unsecured credit offers, but there is no category-wide guarantee. Compare quotes for the same net proceeds and borrowing period, including fees. A low rate is not attractive if the collateral risk or maturity does not fit your finances.

Flexibility

Depending on the product and your location, proceeds may fund property, business expenses or additional Bitcoin. Some jurisdictions impose minimum amounts or commercial-purpose conditions. Confirm that the intended use is eligible before committing funds.

No Credit Checks

Many crypto lending platforms do not require credit checks. This makes crypto loans accessible to individuals with poor or no credit history, as the loan is secured by the value of the cryptocurrency collateral instead of your creditworthiness​​.

Global Accessibility

Providers may serve multiple countries, but country, state or province restrictions apply. A global blockchain does not remove lender licensing, sanctions, identity-verification or banking requirements.

Retain exposure, not unrestricted collateral access

You continue to benefit or lose from movements in the pledged asset's price. You cannot assume the same freedom to move it as with unpledged self-custody. Release depends on repayment, applicable redemption rules and the loan agreement.

The Risks and Challenges of Crypto Loans

Despite the benefits, crypto loans also come with several risks and challenges that borrowers should be aware of:

Volatility

The value of cryptocurrencies is volatile. If the value of your collateral drops significantly, you might face a margin call, requiring you to add more collateral or repay part of the loan. Failure to do so could result in the liquidation of your assets at a loss​​​​.

Regulatory Risks

The regulatory environment for cryptocurrencies is still developing and can vary by jurisdiction. Changes in regulations could impact the availability of crypto loans, the legality of certain practices, or the obligations of both borrowers and lenders. Staying informed about regulatory changes is crucial​​​​.

Security Risks

When you deposit your cryptocurrency as collateral, it’s typically held by the lending platform. This introduces security risks, as the platform could be vulnerable to hacking, fraud, or mismanagement. Choosing a reputable platform with strong security measures will mitigate these risks.

Platform Reliability

The reliability and reputation of the lending platform are crucial. Some platforms might have poor customer service, lack transparency, or even become insolvent, which can affect the security of your collateral and the terms of your loan.

7 Things You Should Know Before Applying for a Crypto Loan

Here are the key terms, rates, and conditions you’ll encounter.

1. Annual Percentage Rate (APR)

The APR reflects the total cost of your loan, including interest and fees. A lower interest rate doesn’t always mean a lower APR if additional fees apply. Calculate the full borrowing cost before committing.

2. Loan Duration

Loan terms impact your repayment and costs:

Shorter terms: less time to arrange principal repayment; total interest depends on the rate and actual borrowing period.

Longer terms: more time to repay, but potentially more total interest. Monthly payments depend on whether the loan amortises or has an end-of-term balance.

Choose a duration that fits your budget and financial goals.

3. Fees

Different platforms charge various fees that can affect the total cost of borrowing, including:

Origination Fees: Charged upfront as a percentage of the loan.

Transaction Fees: Applied for processing payments or other services.

Late Payment Fees: For missed repayment deadlines.

Early Repayment Penalties: Charged for paying off the loan early.

Compare fees across platforms to find the most cost-effective option.

4. Loan-to-Value (LTV) Ratio

The LTV ratio measures the loan amount against the value of your collateral:

Higher LTV: more borrowing relative to collateral, with less buffer before a liquidation threshold.

Lower LTV: more collateral for the same loan, creating a larger price buffer but tying up more assets.

Understand LTV requirements to manage your collateral effectively.

5. Crypto Loan Interest Rates and Fees

Fixed vs Variable Interest Rates

Fixed Rates: Remain constant throughout the loan term, offering predictability.

Variable Rates: Fluctuate based on market conditions, potentially lowering or increasing your costs.

Platform Fees and Charges

Be mindful of additional costs, such as origination fees, late payment penalties, and transaction fees, as these can add up quickly.

Tax Implications of Crypto Loans

Have a qualified tax adviser review borrowing, collateral transfers, use of proceeds and any eventual collateral sale. Do not assume that every step is tax-neutral because the first step is a loan.

6. Collateral Management

If the platform rehypothecates your collateral (uses it for its own purposes), make sure you understand the associated risks, as this could affect how quickly or securely your collateral is returned.

Read more about rehypothecation in Crypto Lending here.

Ledn’s Custodied Loan model allows collateral to be re-posted only to an institutional USD funding partner or Ledn-sponsored financing vehicle. It remains in verifiable custody, with ring-fencing or bankruptcy-remote arrangements; it cannot be lent out to generate interest.

Read more about: Ledn Custodied Loans

7. Transparency and Platform Reputation

Choose platforms with clear terms, transparent practices, and strong asset security. Review user feedback and check regulatory compliance to avoid hidden risks.

How to Get a Crypto Loan in 12 Steps with Ledn

If you hold eligible native BTC and the loan fits your circumstances, the following sequence shows the decisions and documents to work through with Ledn.

Here’s how it’s done:

1. Assess Your Financial Circumstances

Before applying for a crypto loan, evaluate your financial situation. Consider your income, expenses, and existing debts to ensure you can comfortably manage a new loan. Factor in the volatility of crypto and how market fluctuations might impact your loan's terms. Define the purpose of the loan, set a realistic borrowing limit, and plan for repayments.

2. Create or Log Into Your Ledn Account

If you don’t already have a Ledn account, visit the Ledn website to sign up. Provide the required personal information and complete the verification process. If you already have an account, log in using your credentials.

3. Go to the Loans Section

Open the borrowing section in your verified account and review the Bitcoin-backed loan available to your jurisdiction.

4. Select the Type of Loan

Decide whether the ordinary Bitcoin-backed loan fits your cash need, or whether an available B2X transaction fits an intentional decision to increase Bitcoin exposure. They serve different purposes and involve different concentration risks.

5. Enter Loan Details

Enter the amount you need and compare it with your repayment resources. The quote sets out the required collateral and available funding routes.

Collateral asset: use the native Bitcoin transfer instructions provided for your loan. Do not assume an old ETH-backed or Standard Loan offer remains available.

Collateral model: review the current Custodied Loan rights, including restricted re-posting and the prohibition on lending collateral to earn interest.

6. Review Loan-to-Value Ratio (LTV)

Review the quoted initial LTV. Ledn's typical starting point is 50%: $100,000 of BTC supports $50,000 of principal. Check how interest, fees and price changes affect the displayed LTV after funding.

7. Submit Loan Application

After entering all necessary details and reviewing the terms, submit your loan application.

8. Wait for Approval

The application may require additional information or review. Do not make an irreversible spending commitment until the loan and receiving-account arrangements are confirmed.

9. Review and Accept Loan Terms

If your application is approved, Ledn will provide the loan terms. Carefully read through these terms, including interest rates, repayment schedule, and any fees or penalties.

10. Deposit Collateral

If you agree to the terms, deposit the collateral. Follow Ledn’s instructions to transfer your crypto to the designated wallet.

11. Receive Funds

After collateral receipt and approval, funding follows the available payout route. Allow for bank processing and verification; a supported stablecoin payout may require separate conversion before a recipient can use it.

12. Repay Loan

Plan repayment before the standard 12-month maturity. There is no early repayment penalty and partial repayment can reduce the balance and LTV. From 1 January 2027, accrued interest and applicable fees must be cleared at maturity or mid-term refinancing. Eligible principal may renew only under the offered conditions, including LTV below 65%; renewal is not an unconditional extension.

Why Use Ledn For a Crypto Loan?

Ledn combines native-Bitcoin collateral, a defined USD-denominated loan and human support. The useful differentiators are the funding route, transparent collateral-use restrictions and tools for managing the position—not a promise that borrowing has no risk.

Flexible Loan Terms

The standard term is 12 months, with no required monthly payments and no early repayment penalty. Interest accrues daily. Refinancing and renewal have eligibility, timing and LTV conditions; they should not be treated as guaranteed repayment sources.

Loan Options

Published amount-based pricing

The current pricing table lists APR of 10.99% below $250,000; 10.49% from $250,000; 9.99% from $500,000; 9.75% from $1 million; and 9.25% from $2 million. Availability and the individual offer govern. Compare the full cost for your amount rather than applying the largest-loan rate to a smaller loan.

Custodied Loans

Ledn's Custodied Loan collateral may support restricted USD funding through a partner or managed financing vehicle, but neither Ledn nor those parties may lend it out for interest. This is different from unrestricted self-custody and from an unrestricted yield-generating collateral arrangement.

Read more: Rehypothecation in Lending: What Is It, And How Does It Work?

B2X Loans

B2X uses a Bitcoin-backed loan to buy more Bitcoin, increasing exposure to future price movements. More exposure magnifies losses as well as gains, while the loan remains payable. It is a deliberate leveraged investment, not a way to create risk-free Bitcoin.

Transparency and Client-First Philosophy

Ledn publishes monthly Open Book Reports and periodic Proof of Reserves attestations. Examine their dates and scope: a reserve attestation is evidence about covered balances at a point in time, not a guarantee of future solvency.

Fees are transparent, making financial planning straightforward and predictable.

Security and Trust

Ledn’s security documentation specifies HTTPS, AES-256 encryption for passwords and sensitive information, and two-factor authentication for login and selected actions. Its authentication guidance recommends phishing-resistant passkeys or hardware security keys; authenticator-app TOTP remains available to already configured clients, not new setups. These controls protect access and data; they do not remove price or repayment risk. Review the trust centre alongside the collateral agreement.

Ledn lists White Star Capital, Kingsway Capital, 10T and Coinbase Ventures among its investors. Institutional backing is company context rather than a guarantee of loan performance. Its custody-security guidance describes partner multisignature wallets and access controls, alongside account safelisting, withdrawal limits and optional withdrawal-confirmation video calls.

Crypto Loan FAQs

How do I choose a crypto loan platform?

Look for platforms with strong security, good reputation, and clear terms and conditions.

What happens if the value of my crypto collateral drops?

Ledn sends LTV notifications at 70% and 75%. At 80%, liquidation is automatic and irreversible: enough collateral is sold to settle the loan and costs, with remaining BTC returned. A 0.50% trade spread applies. Auto Top-Up can move available Transaction Account BTC at 70% toward a 68% target where enabled; it needs sufficient funds and does not eliminate liquidation risk.

Can I get a crypto loan without collateral?

Some credit arrangements are unsecured and underwritten against borrower credit or cash flow. That is not a standard retail Bitcoin-backed loan: Ledn requires eligible collateral. A flash loan, which must be repaid within the same blockchain transaction, is not ordinary spending credit.

Read more: Crypto Loans without Collateral

Can I use a crypto loan to buy more cryptocurrency?

Buying more Bitcoin is one possible eligible use, including through Ledn's B2X product where available. It increases leveraged exposure: a fall in BTC can reduce the value of both your original collateral and newly purchased holdings while your debt remains. Assess repayment and downside before borrowing for an investment.

Conclusion

Crypto-backed loans can provide liquidity while keeping price exposure, but they exchange an immediate sale for an ongoing debt and collateral obligation. Match the asset, payout, costs, custody and repayment source before selecting a provider.

Ready to get started with a crypto loan? Open an account with Ledn.

Disclaimer

This article is sponsored by 21 Technologies Inc. and/or its subsidiaries (“Ledn”) and is for general information, discussion, or educational purposes only and is not to be construed or relied upon as constituting legal, financial, investment, accounting, tax, estate-planning, or other professional advice or recommendation. Please read Ledn’s full Risk Disclosure Statement and Disclaimers.