What is a Leverage Loan? (and How it Can Boost Your Investment)
Loans come in all shapes and sizes; car loans, student loans, mortgages, payday loans, etc. However, did you know a loan can be used strategically to actually boost your investment portfolio? Introducing the leverage loan. Simply put, this technique involves the use of borrowed funds to purchase an asset with the end goal being the profit from this asset will eventually exceed the cost of borrowing. Today, we’ll go through an easy example of how to use this in a real-life situation using the crypto market.
What is a leverage loan? Here is a simple example
Let’s say you have 1 BTC worth $10,000 that you want to multiply. One easy way to do this is to find a crypto lending platform that accepts BTC as collateral. You then receive the loan amount (let’s say $9,000 for this example) turn around and then buy more BTC with that cash. When you pay back the loan, you will get the original 1 BTC back in addition to the BTC you just bought with the loan. Then, when the price of BTC jumps up, as it often does, you offset the costs of the lending platform and you successfully multiplied.
But why stop at just one loan? Many crypto traders are taking leverage loans to the next level with chains of loans. Here’s how it works.
Using a leverage loan in a chain (aka chain of loans)
Crypto traders are repeating the process just mentioned many times, creating a chain of loans and multiplying their leverage capabilities. Again, let’s say 1 BTC = $10,000 in this example. To begin, a crypto trader uses their 1 BTC as collateral for a USD loan (let’s say at 90% LTV). After getting the $9,000 USD as a loan, they will buy more BTC and use it as collateral for the second loan in the chain. The process is repeated five times to look like this:
1st loan: 1 BTC
2nd loan: 0.864 BTC
3rd loan: 0.746496 BTC
4th loan: 0.644973 BTC
5th loan: 0.557257 BTC
By the end of the chain, the user has 3.812726 BTC. When it comes time to repay the loan, the total amount is 31,701.23 USD (not including the 5015.31 USD the client has from the final loan in the chain). At the end of it all, the got 2.812726 additional BTC for 31,701.23 USD. Therefore, 1 BTC costs only 11270,64. That’s just +12.7 % of current value. Then imagine if BTC price grows +15%, which it has done many times in the past, then the trader essentially got 2.812726 than a much cheaper rate than on an exchange.
This may sound confusing to those new to leverage lending but thankfully, there is a new solution.
Leverage loans now made easy with YouHodler
FinTech platform YouHodler saw crypto traders using the above techniques and invented a new tool that completely automated the chain of loans process. With the click of a button, YouHodler takes the initial collateral and starts a chain of loans from three to ten loans, depending on the user’s choice. With LTV as high as 90%, users know they are getting the best value for their collateral. Furthermore, each loan in the chain has a decreasing fee, meaning the user gets to keep more of their money as the chain extends.
At the end of the chain, the user has up to x6.5 more crypto than they started out with. Furthermore, it’s all done without the headache of manual leverage lending. No rollover fees. More flexibility. Better than trading. Turbocharge your loans today.