Binance Loans: How You Can Use BAL and Band as Collateral?

Customers who register with Binance are eligible to apply for these loans. However, there are no restrictions for those who have not registered with the exchange platform. Among the accepted cryptocurrencies for Binance Loans are BTC, ETH, BNB, etc.

Binance recently added BAL and BAND to its supported cryptocurrencies following this announcement. The loan terms vary across five categories, with durations of seven days, fourteen days, thirty days, ninety days, and one hundred and eighty days. In addition, there is full repayment of the loan before the due date without incurring any penalties or additional interest fees.

The loan's interest calculation is per hour as soon as the registered user starts using the loan. Customers must increase the amount of BNB collateral loans if their individual LTV (loan-to-value ratio) is more significant than their marginal LTV. Depending on market conditions, Binance Loans may require loan repayment in place of additional collateral in certain instances.

Binance Loans Grace Period

Binance Loans provide a grace period of 72 hours for loans with terms of 7 and 14 days and a grace period of 168 hours for loans with terms of 30, 90, and 180 days. A per-hour rate in the three-digit multiple is charged for the duration of the overdue loan. Unpaid loans following the expiration of the grace period result in the liquidation of the collateral in the event of nonpayment.

Users can use loans from the platform to withdraw funds or trade on Binance, subject to meeting certain requirements. Before proceeding, traders seeking to join an established cryptocurrency exchange must read a comprehensive Binance review.

Benefits 

Binance Loan is an option for obtaining crypto loans at a reasonable interest rate. The approved loans are collateralized with suitable crypto assets on the Binance account. If you are considering applying for a crypto loan, click here for more information about Binance Loans. 

Other benefits include:

Staking

You can stake certain available collateral options to earn cryptocurrency rewards. This could result in lower loan interest rates. You can visit the Binance FAQ page for more information on collateral stakes.

Advance Payment

If you repay your loan early, the interest rate will be determined solely by the length of time you had the loan.

Integrated Ecosystem

The loaned cryptocurrency is usable across the entire Binance ecosystem. This includes withdrawals, payments, and trading.

Binance Loans with Collateral

To offer loans at competitive rates, Binance Loans requires collateral. Unfortunately, the world's largest cryptocurrency exchange does not consider credit scores. Instead, it uses the cryptocurrency assets of its users as collateral to mitigate credit risk. As a result, consider the collateral as a secure investment that determines the lending risk. 

Simply put, the collateral is taken if the borrower cannot repay the loan. Consequently, even borrowers with a poor rating (history) can still obtain a cryptocurrency loan. Collateral permits the lender to tailor the loan terms to the borrower's needs. Loan terms refer to the loan's duration, interest rate, and the maximum amount that can be borrowed. A high-quality collateral value decreases lenders' risk. 

At this point, the loan-to-value (LTV) ratio is crucial. The LTV ratio represents the value of a borrower's loan relative to their collateral. This allows the lender to avoid liquidation.

Risks associated with Binance Loans Without Collateral

A cryptocurrency loan requires adequate collateral to deter fraud and maintain low-interest rates. If Binance loans without collateral are made available without collateral, there is a greater chance that the lender is fraudulent.

Other disadvantages are:

Falling Victim to Scams

From the lender's perspective, it is difficult to minimize the risk that comes with lending without collateral or credit checks. If you can find readily available crypto loans that are not collateralized, you should look for red flags to ensure it is not a scam. 

Are you providing sensitive information? Are the lenders implicated in cases of fraud? Lastly, are the loan conditions too good to be true? Do other clients have a favorable opinion of their service? These questions may be useful when verifying the legitimacy of cryptocurrency lenders.

In some instances, victims have been locked out of their trading accounts, thereby losing access to their funds. Scammers may also attempt to deceive victims into providing sensitive information, such as passwords and account numbers.

High-interest Rates

It is unlikely that reputable crypto lenders will provide unsecured loans, as doing so exposes them to loss if borrowers cannot repay. However, crypto lenders may do so in exchange for extremely high-interest rates, smaller loan amounts, or shorter repayment periods. 

These types of loans are inappropriate for traders using leveraged trading to increase the size of their positions. This is because traders have less time to make profitable trades to compensate for the higher interest rates. Therefore, traders should be cautioned against applying for loans without collateral.

Binance Loan Liquidation

Suppose you've secured collateral to lend crypto once your LTV ratio is at the Margin Call threshold. In that case, the lender will notify you of a margin call alerting you to increase your collateral to lessen liquidation risk. 

Forced Binance loan liquidation occurs when a position is forced to shut down due to the initial margin's unintentional or complete loss. Binance does this to prevent traders from sustaining any further loss by limiting additional exposure to market risk.

If the LTV ratio is at the Liquidation Call threshold, the ratio will trigger the forced liquidation of your collateralized assets, and you will be sent an alert for liquidation. After liquidation, a charge equal to 2% of your total loan will be assessed.

However, a forced liquidation could place you in a negative position since your positions will be immediately shut. In addition, since you don't have positions open in the marketplace, you might be left out of profit-making chances in case the market improves. 

Additionally, since you're not actively liquidating your assets, your assets might not be sold at a reasonable price. Also, forced liquidation comes with a fixed charge of 2% of the loan amount.

Conclusion

The decision of Binance to add BAL and BAND to their list of crypto assets is a positive move. This will serve as an advantage to customers who need to borrow these assets for different purposes.