Cryptocurrency-backed loans (commonly referred to as crypto loans) have begun to change the global financial sector. For those with sufficient crypto assets, borrowing crypto against those assets held as collateral can be a seamless way to receive extra capital without selling their assets.

Moreover, interest rates on crypto loans are typically more competitive than traditional loans offered by banks and other financial institutions. Since they generally don’t require credit checks, the time it takes to complete a crypto loan application and receive your funds can also be significantly faster.

However, many people ask whether getting a crypto loan without collateral is possible. The short answer is “unlikely” at the moment. While some crypto lending platforms have started offering undercollateralized loans, receiving a loan with zero collateral is unheard of outside a few rare instances.

Why Borrowers Need Collateral for Loans

As a borrower, proving one has enough collateral to repay a loan is the most fundamental part of the application process. 

The collateral required for borrowing doesn’t have to be physical cash. If a borrower takes out a mortgage for a home purchase, the borrower’s home is often a form of collateral. Likewise, if a borrower takes out a car loan, the car is usually the collateral.

With traditional loans offered by banks and other financial institutions, prospective borrowers must jump through multiple hurdles. First, the lender might reject a borrower’s loan application if they haven’t built up a credit history or their credit score is too low. Even when lenders approve a loan application, the average approval wait time is 52 days, according to a March 2021 report from Ellie Mae.

While both crypto loans and traditional loans both require collateral, crypto loans are a bit different in that the loan application approval process can be quicker and the interest rates are oftentimes more competitive. Because crypto loans generally don’t require credit checks, borrowers get loan approval and receive funds much faster than traditional loans.