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Binance Flexible Loan is an isolated, overcollateralized, and open-term loan product. It allows users to take multiple isolated loan positions. For instance, this could mean taking an ETH loan with TUSD collateral in one position and a BTC loan with USDT collateral in another.
Binance Flexible Loan allows you to leverage Simple Earn Flexible Product assets as collateral to borrow any available cryptocurrency. Therefore, your assets will continue to earn rewards, allowing you to benefit from them even while you borrow against them.
You must be wondering how the Binance can trust that the borrower will repay the loan. This contingency is built into the overcollateralized loan design, which requires the value of the collateral to be greater than the value of the digital assets offered to you. This means if you want to borrow 100 TUSD, you would first have to provide collateral worth more than that.
You can repay the loan at any time in the same cryptocurrency as the borrowed funds. There’s no expiration date for open positions unless your position is liquidated or specific cryptocurrencies are no longer supported on the platform.
How Does Loan-to-Value (LTV) Work For Binance Flexible Loans?
Binance Flexible Loans are open-term, which means that you can keep your positions open indefinitely as long as the relevant LTVs are not exceeded. As a result, each position in a collateral-loan pair has a different LTV ratio, margin call, and LTV liquidation level.
You can calculate the LTV using the following formula:
LTV = Loan Value / Collateral Value.
If the initial LTV is 65% for USDT and you have pledged 1,000 USDT, you can borrow up to 650 USDT in the cryptocurrency of your choice.
What Can I Do With the Cryptocurrency Borrowed as a Binance Flexible Loan?
Once you borrow from Binance Flexible Loan, you can decide how you want to use the loaned assets. You can use the borrowed assets for any purpose, including trading on the spot market, depositing them into Binance Earn products, or withdrawing them from Binance. You can also use the cryptocurrency with a Binance card for your personal expenditure or convert the cryptocurrency to fiat.
However, the pledged collateral remains with Binance Flexible Loan as security for the return of the digital assets you've borrowed. Also, every cryptocurrency is subject to varying maximum amounts you can pledge or borrow.
Advantages of Binance Flexible Loans
Real-time APR rewards
The advantage of the Simple Earn Flexible Product is that when you use assets as collateral for your loan, those assets continue to earn rewards in the form of real-time APR. In simple terms, this means that while your assets are being used as collateral, they will continue to earn additional rewards or interest, allowing you to benefit from them even while you are borrowing against them. This effectively lowers your net interest rate on your loan.
Competitive interest rates
The competitive interest rates of a flexible loan product allow you to borrow cryptocurrency at a lower interest rate compared to many other loan options available on the market. This may allow you to save money on interest payments and potentially reduce the overall cost of your loan, making it more affordable in the long run.
All interest rates for each cryptocurrency in Binance Flexible Loan are updated every minute.
No transaction fees
There are no transaction fees on flexible loan products. This means you won't be charged any additional fees for making transactions related to your loan. This can include activities such as making loan repayments or accessing funds from your loan account. By eliminating transaction fees, the loan becomes more cost-effective for you because you don't have to pay additional fees to manage your loan.
How Is a Binance Flexible Loan Different From a DeFi Loan
Which Cryptocurrencies Can I Pledge or Borrow on Binance Flexible Loan?
Binance Flexible Loan offers and accepts a wide range of cryptocurrencies as loanable and collateral assets, including USDT, BTC, and ETH. However, same-cryptocurrency collateral-loan pairs are not supported on Binance Flexible Loan. For example, you can't pledge BTC and borrow BTC within a single loan position. However, you can have multiple loan positions to borrow BTC with non-BTC collateral.
How Do I Borrow Crypto With Binance Flexible Loan?
To start borrowing with Binance Flexible Loan, you must first open the Flexible Loan page on Binance Earn. Next, you'll need to click "Borrow," and choose which cryptocurrency you'd like to pledge. To complete the process, you'll need to agree to the terms of the loan, including the APR, interest rate, and redemption price.
Upon successful order, pledged collateral will be locked in your Earn wallet to secure any outstanding loan positions, while loaned assets will be distributed to your Spot wallet.
Users can only pledge assets that they've subscribed to as collateral on Simple Earn Flexible Products (Simple Earn Collateral). If the Simple Earn Collateral is insufficient to secure the desired loan amount, you may also choose to use digital assets from your spot wallet as additional collateral. If you choose to pledge these digital assets as collateral, you must first agree to subscribe to these digital assets on Simple Earn Flexible Products.
How Is Interest Accrued for a Loan Position?
In a Binance Flexible Loan, the interest is calculated every minute based on the total amount of money owed (outstanding loan) and the interest rate set for that particular minute (APR). This means that as each minute goes by, a small amount of interest is added to the total amount owed. This ongoing accumulation of interest after each minute gradually increases the overall outstanding loan balance.
The total amount of Simple Earn Flexible Product assets pledged for the Binance Flexible Loan will be reflected in the “Collateral amount” column in your Earn wallet.
What Is Loan Liquidation and What Is the Liquidation LTV?
Liquidation means that the lender has the right to obtain ownership of your collateral if you default on your obligation. For example, this could happen when the collateral decreases in value or the value of the borrowed assets increases due to accrued interest over time. In other words, the liquidation gets triggered when the current LTV exceeds the liquidation LTV.
A partial liquidation occurs when the current LTV for a particular loan position meets or exceeds the liquidation LTV. ~50% of the outstanding loan for that position will be repaid using the equivalent value of the pledged collateral. A full liquidation occurs when a hard cap liquidation LTV of 90% is reached for any cryptocurrency, or when an outstanding loan has a value of less than 200 USD. The entire loan will be repaid using the equivalent value of the collateral for that loan position.
To avoid liquidation, you can lower your LTV by depositing more collateral or repaying a portion of your loan. Repaying your loan will lower your LTV more than depositing more collateral. Monitoring your LTV and keeping it low is highly recommended to avoid liquidation.
In case of liquidation, you will be charged a 2% liquidation fee based on your loan amount. It will be deducted directly from your collateral by the market price of the asset.
What’s the Difference Between a Flexible Rate and a Stable Rate?
The stable rate acts as a fixed rate in the short term but can be rebalanced in the long term based on changes in market conditions. A variable rate is a rate that is updated every minute based on factors such as asset volatility and market conditions. As a result, it's important to pay close attention to the rate you're paying.
As the name implies, the fixed rate will remain fairly constant and is the best option for planning ahead for how much interest you will need to pay. Variable rates will change over time and may be the best rate.