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Comparing the Differences Between APR and Interest Rates

Published 24 November, 2020


    Every USD lender is going to provide rates to their client. These rates outline the cost of taking out a loan. Sometimes you see these fees written as Interest Rate or APR. These terms are not the same and are calculated differently. It’s important to understand the terms of your loan offer before signing a crypto loan agreement.

    APR (Annual Percentage Rate)

    A loan’s Annual Percentage Rate, or APR, is the full rate you will be charged over the course of your loan. This number is a function of the amount borrowed, the fees charged, and the duration of the loan. Let’s look at a BlockFi loan with a 2% origination fee over a 12-month loan term. If your loan offer has a 4.5% interest rate, your APR will be around 6.5% for a crypto asset backed loan.

    Interest Rate

    Interest Rate refers to the percentage of interest you will be charged over the duration of your loan. For example, BlockFi loans start at an 4.5% interest rate and have a 12 month duration for collateralized loan.

    Additionally, BlockFi loans are interest-only. Some lenders offer amortized loans, which make you pay interest and principal every month. This means that BlockFi clients will only pay interest during their monthly payments, with a lump sum at the end.

    So, if you took out a loan for $10,000 with a 4.5% annual interest rate, you would pay $37.50 per month. Interest only loans keep your monthly payments low!

    What you should look at when comparing bitcoin loan APR?

    When shopping for crypto loans, it’s best to use the APR as your unit for apples-to-apples comparison. The lower the APR, the less money you have to pay. It’s that simple.

    * Loan Amount: $10,000BlockFiOther Lender 1Other Lender 2
    Interest Rate4.5%13.5%16%
    Origination Fee2%1.0%0%
    Total Fees$650$1,464$1,735
    Approximate APR6.5%14.6%16.1%
    *Interest compounded daily

    In the example above, you have a typical BlockFi loan for $10,000 compared to another lender’s typical rates. You can see that BlockFi’s interest rate is lower, which means that your monthly payments will be lower and we have the best bitcoin loan APR. You can also see that the two origination fees are very similar. However, the overall APR is lower on the BlockFi loan offer, meaning that you will pay less over the duration of the loan.

    What else should I consider when taking out a crypto loan?

    On top of Interest Rate and APR, other things to consider are whether the lender you’re considering offers amortized or interest-only loans. BlockFi’s interest-only loans mean that your monthly payments are only on the interest due. If your loan has a 4.5% interest rate, that ends up being 0.4% per month.

    What is an Amortized loan?

    Other lenders use amortized loans. During repayment of an amortized loan you are required to interest & principal monthly. This means your monthly payments will be much higher and require more cash on hand. BlockFi loans are interest only loans, which only require monthly payments of interest. The total loan amount can be paid back at the end of your term, leaving more flexibility when borrowing. Click here to learn more about amortized & interest only loans with cryptocurrency.

    What is an LTV ratio of a loan?

    You should also consider the LTV (loan-to-value) ratio of the loan. The LTV determines the amount of crypto collateral you need to provide the lender before receiving your loan. BlockFi offers LTVs up to 50% but can change depending on the client’s needs. Lower LTVs protect borrowers from margin calls because conservative lenders are less likely to need to liquidate your collateral. Click here to learn more about how LTV works.

    Why Should I Take Out a Loan with BlockFi

    BlockFi is the leading crypto asset-backed lender in the U.S. with the largest lending footprint and the most affordable rates in the market. Our business is the only lender in the crypto space with institutional backing and top-of-class client service.

    By leveraging your crypto towards a loan, BlockFi enables clients to avoid selling their crypto to access USD. Additionally, BlockFi loans can provide efficient ways to limit tax exposure and maximize your potential long-term crypto investment earnings.

    Clients can apply for a loan in less than two minutes. We often take clients from application-to-funding in as few as 90 minutes.

    If you have any additional questions, please submit a support ticket HERE.

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    Disclaimer: Rates for BlockFi products are subject to change. Digital currency is not legal tender, is not backed by the government, and BIA accounts are not subject to FDIC or SIPC protections. Security is our top priority. Please see our Vulnerability Disclosure Form and Bug Bounty Program.
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