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As cryptocurrency continues to gain popularity, more people are attempting to get in on the digital currency craze. Bitcoin prices were at an all-time high in November 2021, and while prices have dropped significantly since then due to surging inflation, prices are still high and on the rise at $44,250.
With these high prices and cryptocurrency being such a hot commodity, some have turned to taking out loans to buy the digital currency or even taking out mortgages. While it may be tempting to take out other loans to be a part of this investing phenomenon, borrowing money you don’t need and may not be able to pay back is never a 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 buy cryptocurrency, you should check individual lender guidelines to see if they specifically prohibit using loans for this purpose.
Unless otherwise specified, most lenders allow you to take out personal loans for whatever you want so long as you meet eligibility requirements. If you are looking for a loan to buy cryptocurrency, check out rates from top personal and home improvement loan lenders.
Because cryptocurrency is relatively new, most lenders do not specifically prohibit using loan money for this purpose. Many lenders also do not ask what you are using the money for. If you find a lender that doesn’t care about your loan purpose, you could apply for an online personal loan 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 secure, cryptocurrency-backed loan through crypto lending platforms like BlockFi and Nexo.
Crypto loans have a few benefits, including low interest rates, choice of loan currency, fast funding and no credit check. However, putting up 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 back much more than you initially borrowed.
There are also other risks and drawbacks, including varying repayment terms and asset eligibility, as well as not being able to access your currency used as collateral during the term of the loan.
Is borrowing money to buy cryptocurrency is a bad idea?
Whether you are planning to take out a regular loan to buy cryptocurrency or you’re looking to take out a crypto loan to buy even more digital coin, taking out a loan for an uncertain investment is extremely risky.
You will be committing to making payments and paying 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 the loan payments. Crypto loans are just as risky, if not more so given that you are unable to access the cryptocurrency you put up as collateral during the loan period.
In many ways, using a loan to buy cryptocurrency is similar to getting a loan for gambling. You can’t guarantee you will make a profit from cryptocurrency but will have to pay the loan regardless. If you plan to pay the loan with profits, you may not be able to. If you lose money overall on cryptocurrency, you may not be able to make payments on the loan. Not being able to make loan payments will generally come with large fees and a significant hit to your credit score.
In general, you should only buy cryptocurrency with money you can afford to lose. You shouldn’t purchase 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 digital coin is a hot commodity right now and can be very profitable, it is an extremely unstable market. You could put yourself into serious debt trying to play the market with money you don’t have.
If you want to get into cryptocurrency, it is important to do your research and only invest with money that you can afford to lose if things go south.