What is a Non-Purpose Loan?steemCreated with Sketch.

in bitcoin •  4 months ago 

In this article, we talk about what a non-purpose loan is and how this is related to the DAGT platform. Let’s take the definition of a non-purpose loan from Investopedia.

Non-purpose Loan:

A non-purpose loan can be an alternative type of loan that often involves using investment securities as collateral.

Breaking Down a Non-Purpose Loan:

With a non-purpose loan, investors continue to receive the benefits of their portfolio holdings, such as dividends, interest, and appreciation. If the value of the pledged securities declines, however, the lender may require that additional securities be put up as collateral or that part of the loan be repaid to make up for the decrease in collateral. This type of borrowing is considered an alternative to traditional margin borrowing because it allows multiple investment accounts to be used to secure a loan.

This is very similar to the way loans on the DAGT platform work. Crypto assets like DAGT and ETH are locked into a smart contract to act as collateral for the loan. Once the loan is paid back in full with the appropriate fees, the crypto assets are then returned back to the user. Users are able to borrow up to a maximum of the 50% Loan to Value ratio (LTV) without having to sell any of the underlying assets. This allows you to hold your precious crypto assets, gain liquidity with USDT, and see any gains in the market associated with your crypto holdings.

This is even more relevant because we are near the bottom of a bear market. You would not want to liquidate your cryptoassets at a loss when there is a chance that it could recover shortly after.

If the markets do take a fall, there are a few ways to bring the loan back into 50% LTV requirements. You can either make extra payments to bring down the value of the loan, you can increase the amount of collateral to bring up its value, or in the worst case scenario, a portion of the collateral will be liquidated. These measures also product the users that decide to lend money.

These loans can provide liquidity for a myriad of purposes. A few examples include; paying off credit cards with higher interest rates, school loans, utility bills or even going for a holiday to escape this crypto winter. Our loan functions are now fully functioning, and we invite you to try.

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