Why Nexo: Bank Loans vs. Selling Crypto vs. Crypto-backed Credit

Mar 15, 2020•5 min read

You’re a new crypto investor and you’re wondering what makes Nexo’s credit lines a better alternative to traditional loans or simply selling your crypto and using the funds? This article will help you make that distinction and make the most of your crypto.

Sell or Borrow?

First things first: If you believe in your crypto’s long-term growth, borrowing against it is more beneficial than selling it because you can access the value of your investment without giving up your assets and their potential to increase in price.

Crypto Credit > Regular Bank Loans. But Why?

How is crypto credit, specifically the Instant Crypto Credit Lines™, better than simply keeping your crypto and getting a regular bank loan? There are four main advantages:

  1. Cost-efficiency
  2. Flexibility
  3. Speed & Convenience
  4. Accessibility & Inclusivity

1. Cost-efficiency

Lower Interest Rates

It may sound fancy, but it’s quite simple: the Instant Crypto Credit Lines™ offer significantly lower interest rates compared to banks. We’ve dug up the numbers for you: The average interest rate on loans is roughly 10% and may be as high as 36% for those with weaker credit scores. In contrast, Nexo offers an APR starting from just 6.9% and never exceeds 13.9% and we don’t look at credit scores at all (more on this later.)

No Fees

Banks also tend to charge all sorts of fees for their services, whereas Nexo adheres to a #ZeroFees policy. There are no additional costs associated with our services.

Less in Taxes

Thirdly, the Instant Crypto Credit Lines™ can save investors thousands of dollars in taxes. Unlike selling your crypto, borrowing against your wealth is not a “taxable event”. Considering that in some jurisdictions taxes can eat up more than half of your profit, this is a huge advantage.

2. Flexibility

Loan vs. Credit Line

You may have noticed that we refer to our service as a credit line, and not a loan. With loans, a client takes out a given sum and immediately begins accruing interest. The Instant Crypto Credit Lines™ allow you to withdraw as much or as little as you want, whenever you want. Additionally, you are only charged interest on the sum you withdraw, giving you greater flexibility to manage your credit as you go and pay as little or as much in interest as you decide.

No Installments

If you’ve ever had to pay off a loan before, you know how it is: you are required to make monthly installments and are expected to repay the loan by a certain date in the future, leaving you to slowly accrue a set amount of interest. Traditional banks sometimes also charge early repayment fees, which effectively forces you into committing to pay more in total. The Instant Crypto Credit Lines™ scrap all monthly installments, deadlines, and early repayment fees after 30 days, so you can borrow and repay in your own time, on your own terms.

3. Speed & Convenience

You may be wondering why our service is called the Instant Crypto Credit Lines™. Naturally, it’s because you receive your money immediately. Nexo offers withdrawals within 24 hours of each request through our fully automated platform. To put this into perspective: just applying for a loan at a bank can take days or weeks, and receiving the cash can take longer. Our credit lines are also available in over 40+ fiat currencies across 200 jurisdictions, so you get your cash in a timely manner and in a currency that is instantly usable wherever you may be.

Being able to withdraw credit swiftly is important if you have pressing expenses. However, it can also be especially useful to traders who want to capitalize on volatile assets, the price of which may not remain stable for long.

4. Accessibility & Inclusivity: #CreditScoreNoMore

A part of our mission as a company is to make quality services accessible to everyone. By offering its services in 200+ jurisdictions worldwide, Nexo is geographically boundless. However, the financial inclusivity that comes with crypto runs deeper.

In traditional finance, wealthier individuals tend to receive more cost-efficient loans based on their higher credit scores. Meanwhile, the less privileged, whose credit scores are typically lower, pay more for simple credit. This phenomenon results in the demographics of the underbanked and – in cases where people can’t afford credit at all – the unbanked people.

To bring quality credit and other services to the underbanked and unbanked, Nexo eliminated credit scores as a criterion for lending. We did this through collateralized lending: by using crypto as collateral, we bypass the risk of loan defaults. Should a borrower fail to repay their credit line, the company can compensate for the loss by selling their collateralized crypto. This leaves no need to use credit scores to determine creditworthiness and allows all Nexo clients to take out any amount against the necessary collateral.

But How Are Nexo’s Interest Rates Defined?

If borrowers with the best credit scores receive better interest rates and Nexo doesn’t look at credit scores, then how do we determine a clients’ interest rate? At 13.9%, the maximum APR of the Instant Crypto Credit Lines™ is already very low, but we provide even lower rates to clients who hold NEXO Tokens.

Part of our native token’s utility is to provide a 50% discount on credit line interest. It works like this: If you have enough NEXO Tokens in your account to cover the interest accrued from the moment of withdrawing funds up to your repayment, you receive a 50% discount on the total interest. This brings your rate down to just 6.9% APR. Our system is also flexible, so if you only stake the needed NEXO Tokens for half of your loan period, you will still receive a 25% discount. This applies to any staking period.

You’ve Got Some Crypto! Now What?

With all this information on why borrowing against your crypto trumps selling it and spending the profits, you may be thinking: “Now what? What do I buy to maximize my earnings?” If that’s the case, we have good news for you. For that smidge of inspiration on how to best leverage your assets, check out the rest of our Why Nexo series which features information on using the Instant Crypto Credit Lines™ for: