Crypto-Backed Loans vs. Traditional Loans – Everything You Need To Know - Milk Road

Out With The Old, In With The New

Have you ever needed cash fast, but didn’t want to sell your crypto during a dip?

Maybe you’ve dealt with a never-ending bank loan application, only just to end up getting denied.

Whether it’s for a car, a business idea, or an unexpected expense, getting access to funds shouldn’t be as hard as it’s become through the traditional system.

That’s where crypto-backed loans, like those from Ledn, step in: Lightning-fast, flexible, and built for the modern world. No banks, no nonsense.

In this guide, we’ll break down how borrowing against your crypto compares to borrowing from a bank. Everything from how you apply, to what happens if things go sideways.

Note: In this article, we focus on centralized platforms like Ledn, which let you borrow both stablecoins and fiat (like USD). For everything to do with DeFi lending, check out this Milk Road page.

Borrowing 101: The Basics

You’ve probably dealt with traditional loans before, maybe for a car or a home. But crypto-backed loans are a faster, easier way to borrow.

Here’s what the process typically looks like for each type of loan:

Crypto-Backed Loans

With crypto-backed loans, you use your crypto (usually $BTC) as collateral to get cash. You don’t have to sell it, usually don’t trigger taxes, or hope to buy it back later.

Platforms like Ledn let you deposit your $BTC, apply online, and get funded within 18 hours. No credit checks or income verification.

The process is simple:

1. Deposit your $BTC as collateral
2. Get approved instantly
3. Receive cash in fiat or stablecoins
4. Pay it back when you’re ready + interest (no monthly payments!)
5. Get your collateral (Bitcoin) back

Traditional Loans

On the flip side, traditional loans come from banks and credit unions.

They require credit checks, proof of income, collateral (sometimes), and a lot of patience.Approval can take days or even weeks, and can fall through if you’re self-employed or don’t have a perfect credit history.

That process usually looks like:

1. Apply through the bank
2. Submit income docs and credit history
3. Wait (and wait) for approval
4. Get funded
5. Repay monthly with interest

If you don't repay, you face fees, credit damage, or even seizure of your collateral assets. In some cases, you can even incur penalties for repaying early.

Both types of loans get you cash. But one can be a mountain to climb just to get approved, while the other? Just bring your Bitcoin.

Pros & Cons

Of course, every loan’s got its pros and cons. Traditional loans have their place, as do crypto-backed ones.

Here’s the list for each type of loan:

Crypto-Backed Loan “Pros”

Crypto-backed loans are kind of a life hack. You get quick cash without selling your Bitcoin, so you stay in the game if it goes up.

There’s also usually no capital gains tax, no credit check, and no bank drama to deal with. It’s kind of like a sneak-peek into how the wealthy do it: borrow against assets, keep the upside, never sell a thing. This isn’t just smart – it’s strategic. You finally have the tools to play the game just like Elon Musk, just on a smaller scale.

With platforms like Ledn, you can get approved instantly and funded in under 18 hours, with no credit checks.This also often comes with better rates than a personal loan – Ledn starts at 12.4% APR.

It also barely matters where you’re based, or even if you have a bank account – you may be able to apply for a Ledn loan from just about anywhere in the world.

Where banks will often nickel and dime you wherever they can, crypto-backed loans like Ledn offer 100% transparency in their fees and processes. Plus, they won’t ask you for a cent in repayments until you want to close the loan.

Crypto-Backed Loan “Cons”

The main catch with crypto-backed loans is that you need more assets upfront. This is usually at least double what you want to borrow.

Unlike banks, which can sometimes provide loans based entirely on your credit history, crypto lenders need actual assets on hand.

Then there’s volatility. If Bitcoin drops, you might have to top up your collateral or risk liquidation. Your house won’t fluctuate in value by 20%, quarter to quarter – but Bitcoin definitely might.

You’ll need to be prepared to top-up your collateral, or at least keep a close eye on it. You have precious tokens at stake.

Traditional Loan “Pros”

Going the traditional loan route almost always means more stability.

Your collateral, like a car or home, isn’t volatile in value like crypto is.Paying on time even helps build your credit for future loans.

Banks are also very heavily regulated, so there’s more protection if things go sideways.

Traditional Loan “Cons”

Traditional loans are slow to get approved for, rack up expansive fees, and rarely give you any flexibility on loan terms and repayments.

They’re also picky about what you can use as collateral. Got a ton of BTC? That won’t help you here.

If you miss a payment, your credit score could take a hit that sticks for years. And if it’s a secured loan? You’re not just losing internet coins. You could lose your car, or even your house.

That’s a big risk to take.

Real-Life Example: Alice vs. Bob

Now, let’s bring this all to life with two people needing $20,000 for a business startup: Alice and Bob.

Alice (Crypto-Backed Loan with Ledn)

Alice puts up $40K in BTC to borrow $20K via Ledn.

That’s a 50% loan-to-value ratio, at a 12.4% annual interest rate. Because she’s in the US, she skips the usual 2% origination fee.

She applies online, skips any credit checks, and gets the cash in under 24 hours. Pretty damn straightforward.

Over the year, she pays $2,103 in interest. There are no monthly payments, she just repays when it works for her. She can even extend the loan term as long as she likes, provided that she maintains a healthy LTV.

Once it’s paid off, she gets all her $BTC back.

What Happens If Alice…

• Sees her collateral fall in value?If Bitcoin drops too much and her LTV goes over 80%, part of her collateral could get liquidated – unless she tops it up.
• Sees her collateral rise in value? If her LTV drops below 30%, she can get some of her $BTC back.
• Pays On Time? She gets her full Bitcoin back and only pays $2,103 in interest. Clean and simple.

Outcome: Alice gets fast cash, pays less in interest, and keeps the upside if Bitcoin pumps – but she’s exposed if the market crashes. Still, she kept her crypto and her freedom.

Bob (Traditional Personal Loan)

Bob applies for a $20,000 personal loan via a bank.

With decent credit, he gets a 15% APR, and doesn’t need to put up any assets as collateral.

To qualify, he submits income docs and passes a credit check. It takes about five days to get approved and funded.

He ends up paying $3,290 in interest over the year, with fixed monthly payments.

There’s no collateral at stake, but if he misses a payment, his credit score could take a serious hit.

What Happens If Bob…

• Misses Payments? His credit tanks, and he could end up in a debt collection process.
• Pays On Time? His credit improves, and he keeps his assets safe. But still pays over $3K in interest.

Outcome: Bob gets the money, but it’s slower, more expensive, and tied to his credit. There’s no market risk, but there’s also no upside if things go well.

Overall, Bob jumps through more hoops, pays more, and locks into strict terms. On the other hand, it’s safer, and he doesn’t have assets at risk – just his credit score.

Regulations & Protections

Getting a loan isn’t just about the numbers. You also want to consider who you’re trusting with your assets, or any legally-binding contracts.

And when it comes to trust, traditional finance and crypto play by different rules.

Traditional Loans

To say the least, banks are pretty heavily regulated. They follow laws like the Truth in Lending Act (TILA), so borrowers are protected and terms have to be clear.

In the US, if a bank goes under, your accounts are backed by FDIC insurance. And if something goes wrong (say you misapplied a payment or missed a due date) you’ve got legal options, dispute processes, and a system designed to help.

Crypto-Backed Loans

Crypto-backed lending works a little differently depending on the platform. Some let you hold onto your crypto the whole time, while others offer a custodial option.

Ledn lets you choose between a Standard loan, or a Custodied loan if you want extra peace of mind.

Although there’s no FDIC insurance in crypto, these platforms are still regulated and can shoot for a range of security certifications and additional transparency measures.

For example, Ledn takes security seriously. They’re SOC 2 Type 2 certified, run regular Proof-of-Reserves audits, and only lend to carefully vetted institutions. They also have a 7-year track record in lending with more than $9B in loans provided – a longer history and more volume than some banks.

Nothing’s ever completely risk-free, but Ledn is undoubtedly one of the most trusted names in the space.

Crypto-Backed Loans vs. Traditional Loans Summary

Why is Ledn the perfect choice? The Smart Way to Borrow in 2025

You already know the basics – using Ledn means no need to sell your $BTC, no credit checks, and lightning-fast funding.

Security’s dialed in too: ring-fenced funds, third-party audits every six months, and backing from Coinbase Ventures, Alan Howard and several other notable names. It’s everything you want from a serious lending platform — without the noise.

With over $9 billion in loans issued and a flawless track record over 7 years of operation, you know it’s a platform that you can trust.

Best of all, Ledn’s loans require no monthly repayments, let you redeem excess collateral with a low LTV ratio (under 30%), and can roll over as long as you like – provided you keep it healthy.

Users outside the US get an even sweeter deal with additional features like earning interest on $BTC, $ETH, $USDC, and $USDT holdings, as well as the ability to double their Bitcoin exposure in a bull market via a feature called B2X. If you want to read more about B2X and Ledn’s full suite of products, check out our full Ledn review here.

Why sell your Bitcoin or fight with banks?Try Ledn and borrow smarter today.