Unbank yourself and flourish during retirement. Subscribe Here! >
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.
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:
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.
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.
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.
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.
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.
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:
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.
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.
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.