Binance has announced the launch of Fixed Rate Loans, which offer users more predictable borrowing and lending options, especially for stablecoins.
According to a recent blog post by the cryptocurrency exchange, this new service will allow users to lock in a custom annual percentage rate (APR) for the duration of their loan, ensuring stable costs and returns for both borrowers and suppliers.
The Fixed Rate Loan service offers over-collateralized loans, meaning borrowers are required to provide collateral that exceeds the value of the loan to reduce the risk of liquidation. By supporting multiple types of collateral, the likelihood of forced liquidation will be further reduced.
Once a borrower places an order, their collateral will be frozen in their Spot Wallet and any transfers or trading of these assets will be restricted until the loan is repaid in full. If the order has not yet been matched, the borrower can cancel and release their assets.
The interest on the loan is collected in advance at the time of asset transfer, i.e. the borrower receives the loan amount minus the interest calculated in advance. Even if the borrower repays the loan early or the loan is liquidated before the maturity date, the interest amount remains unchanged and is not refunded.
According to the official post, borrowers should keep a close eye on their Loan-to-Value (LTV) ratio. If the LTV reaches a critical level, the system automatically triggers liquidation with a fee of 2% of the amount borrowed. If the loan is not repaid on time, late fees calculated at three times the standard interest rate will accrue hourly.
On the provider side, assets will be frozen in Spot Wallets until the loan order is matched. Once matched, the supplied assets will be transferred and held by Binance until the loan term expires. Suppliers will not be able to withdraw funds early or request a refund before the maturity date.
However, it is necessary to take into consideration the risks associated with such transactions.
*This is not investment advice.
