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Use Celsius Network Loans When You Need Cash, and Save on Taxes

Celsius has filed for Chapter 11 protection from creditors in U.S. courts. All all crypto deposited with Celsius remains unavailable.

If you continue to read any of the Celsius pages on CryptoRetirees.com, do so for informational purposes only. Do not join Celsius at this time.

I’ve removed all Celsius signup buttons and references to joining Celsius until I know more about the outcome of Celsius Network’s restructuring, and whether it will still be a viable way to earn retirement income.

Thinking about becoming a Celsian to earn higher interest rates on some of your savings?

Then you may be concerned about times when you may need cash to cover an unexpected expense. Celsius Network loans are an effective way to deal with those emergencies.

I covered the details about how crypto loans work in this article.

Here, I’ll be discussing Celsius Network loans.

Only non-U.S. people, and accredited investors in the U.S., can earn interest on crypto assets on the Celsius platform.

If you live in the U.S. and are not an accredited investor, you’re not allowed to earn interest. Celsius had to put this restriction in place to meet Securities and Exchange Commission regulations.

However, you can use other features, like taking out a loan or swapping between coins and tokens with no fees charged.

You’ll also be able to earn from staking certain assets, once Celsius has that in place.

It’s easy to obtain a loan from Celsius. But why would you want to take out a loan rather than simply cashing in some of the crypto you have on Celsius?

There are several benefits:

  1. Taxes. In the U.S., each transaction you make with crypto, including trading or swapping one token for another, is a taxable event.

    You’ll end up paying the capital gains tax rate on all gains. And you can report a loss on any trade where you lost money.

    If you take a loan from Celsius, you aren’t selling or withdrawing your crypto (there’s no transaction to report) so there’s no capital gains tax to pay on it.

    A secondary benefit regarding taxes is that it lessens the reporting burden. Americans who trade in and out of crypto have enormous tax reporting headaches. There’s software out there just to deal with crypto trading taxation.

    Live outside the U.S.? Many other countries have similar crypto tax requirements.

  2. Appreciation. This benefit only applies if you have your savings in BTC or another crypto whose price can go up and down.

    If you leave your crypto in Celsius, it can continue to appreciate while you take advantage of its cash equivalent at the time you take out the loan.

    Stablecoins don’t appreciate, since they’re pegged to the U.S. fiat dollar or some other currency (e.g., the euro).

  3. No origination fees. The Celsius Network lending process is all in-house, so there are no fees to eat into crypto assets.

  4. No credit checks. This is due to the high amount of collateral you put up to secure the loan.

  5. Easy refinancing. You can refinance your loan whenever you need to. This includes extending your loan past the original term.

    Some Celsians have used loans to buy houses and simply refinance when the original loan term expires. One Celsian recently bought a house for his mother.

Note: I recommend (and can’t recommend highly enough) that, if you’re on a fixed income, you do not buy any crypto for its appreciation aspect. Stick to stablecoins.

If you put them on the Celsius platform, you can earn up to 70X or even more compared to what your bank will pay you for the same amount of money. With virtually no risk!

If you later come into some money (e.g., an inheritance), and you feel comfortable about it, consider investing in some crypto coins and tokens that can appreciate in price.

What’s the Cost of a Celsius Loan?

The cost of the loan will depend on which crypto you use as collateral, the amount of collateral you have available, and the loan term length.

In the article I wrote about crypto loans, I used the example of a $1,000 loan.

If you want the lowest interest rate (just 0.1%), you’ll need four times (4X) the loan amount as collateral.

So, if you need $1,000 in cash, you’ll need to provide $4,000 in crypto as collateral to receive the 0.1% interest rate.

The loan to collateral rate is called the LTV, or Loan To Value. The higher the Value (the collateral you put up to secure the loan), the lower the interest rate. The LTV is expressed as a percentage.

A 25% LTV means the ratio is 1:4 (every dollar of the loan has $4 of collateral). A 33% LTV has a 1:3 ratio, and a 50% ratio has a 1:2 ratio.

If you don’t have $4,000 on Celsius, you can choose a higher interest rate and lower collateral. If you have $3,000 for collateral, your loan rate will be as low as 1% up to 6.95%. And if you only have $2,000 in collateral, your loan rate will be as low as 1.95% up to 8.95%.

The range in rates is based on which asset you use as collateral. Celsius accepts 14 coins or tokens as collateral for 25% LTV loans, including all the stablecoins. It accepts more than 40 for 33% LTV loans.

If you were to take out a $1,000 loan from Celsius for a year at a 25% LTV, your interest cost would be just 8 cents a month, for a total of $0.96 for the year.

And if you’re holding some CEL tokens in your account, the cost could go as low as 6 cents a month.

There’s another cost to consider though. For the period of the loan, the crypto you use as collateral will not earn any interest.

So if your $1,000 loan is for one year, you’ll lose approximately $70 in interest on stablecoins.

So it’s definitely to your advantage to take the shortest loan period you can afford. Celsius Network loans can be as short as 6 months, up to 5 years. And you can usually extend your loan if you need to.

How to Pay the Interest

If you take out a loan, you can choose to have Celsius deduct the interest from your account automatically each month. You can pay in CEL tokens, Bitcoin, Ethereum, or any of these stablecoins — GUSD, USDC, TUSD, USDT or DAI.

Interest payments will not come out of the collateral, so you’ll need enough of whichever asset you choose to cover the monthly interest.

You can also choose to pay the interest manually, which allows you to pay with CEL or the crypto of your choice, or with U.S. dollars.

You can pay off your loan early. However, if you pay it off before the six month minimum period, Celsius will deduct a total of six months of interest from your account.

For example, you take out a loan for one year, and pay it off in nine months. You’ll pay interest for the nine months you had the loan.

If you pay it off in four months, Celsius will deduct interest for the remaining two months of the six month minimum period.

The Loan Type

Celsius loans are balloon loans. That means you don’t make any principal payments on your loan until the day it comes due. Then you’ll need to repay the entire amount.

What if you can’t repay it at that time? You can negotiate a new loan with Celsius at whatever the interest rate is at that time. Or extend the existing loan at the then-current rate.

Don’t leave it until the last minute though. Contact the Celsius Network lending department ahead of time to advise them and work out the details of the new loan or loan extension.

I also recommend that you start putting aside enough each month so that the balloon payment won’t become another cash emergency. For a $1,000 loan, putting aside $83.34 monthly will cover the loan when it comes due.

If you can afford $125 a month, you can pay off the loan in eight months and have your collateral start earning interest again four months early.

Are You a California Resident?

There’s great news for you. If you have enough collateral for a 25% LTV loan (1:4 ratio), you won’t have to pay any interest at all.

Yes, you can have a loan at no cost, other than the cost of the interest you would have earned on your collateral.

Margin Calls

If you put up Bitcoin, Ethereum or any token whose price can rise and fall, you could be subjected to a margin call. This happens when your collateral becomes less valuable due to a price drop.

Celsius will give you three options at that time, but you need to make your decision quickly, or it will liquidate some of your crypto to repay the loan. Your options are:

  • Pay off the loan
  • Provide more collateral
  • Accept a higher interest rate (lower the LTV)

Celsius has a page about how to manage a margin call. You can find it here.

It also has a video on how to resolve a margin call.

How Long Does It Take to Receive My Funds?

If you request a stablecoin loan, you’ll have the tokens in your account in about 30 seconds. You can then send them to Coinbase or another exchange to have them converted to dollars. Then withdraw the dollars to your bank account.

If you’re taking out the loan to help someone else (e.g., a relative), send the stablecoins to that person.

You’ll have to whitelist that person’s stablecoin wallet address, which will take 24 hours to complete. (This is a security precaution to prevent unauthorized withdrawals from your account.)

There are no fees at Celsius, so there’s no cost to send them. The person who receives the tokens can exchange them for dollars for a fee on his or her preferred exchange.

Note: There will be fees at your exchange for converting the stablecoins to dollars, and for sending them to your bank account.

If you request a USD (fiat dollar) loan, Celsius initiates the wire transfer process as soon as the staff approve your loan, during normal business operations (not on weekends or U.S. national holidays).

If you live in the U.S., you could have the loan amount in your bank account the same day or the next business day.

If you live outside the U.S., it will take 3-5 business days to receive the loan amount.

Note: The amount arrives in USD. Be sure to have a bank account that accepts USD. For example, you cannot deposit USD into a CAD bank account in Canada. You need a USD account at your bank.

Also, all transfers are done through the SWIFT system. You’ll need your bank’s full contact information and SWIFT code along with your bank account information to complete the loan request.

Not a Celsius Member Yet?

You can only take advantage of the low rates on Celsius Network loans if you’re a Celsian. If you’re not a member yet, why not join now?

If you click on the button below to sign up, Celsius will credit you with $50 in Bitcoin as a bonus after you deposit $400 USD to your account.

Disclosure: If you use that button to join, Celsius will credit my account with $50 in Bitcoin for referring you. So we’ll both have more collateral for Celsius Network loans.