Repaying a Crypto-Backed Loan: What to Check Before You Borrow

In brief

• Most crypto-backed loans, Arvexo's included, are interest-only: interest is billed monthly and the principal comes back in one piece at maturity. If you expected the balance to shrink, plan again.
• The things that go wrong go wrong on the repayment side: a missed payment, an exit charge, a slow collateral release, a forced sale. All of them are easier to settle before you sign.
• Below is one loan from funding to collateral release on Arvexo's published terms, and the six things to check before you apply.

Most people research the borrowing and improvise the repaying. That is the wrong way round, because every unpleasant outcome in crypto-backed lending happens on the repayment side: a missed payment, an unexpected charge for exiting early, a collateral release that takes longer than expected, a forced sale.

None of those is hard to plan for. They are just easier to plan for before you sign than after.

What repayment usually looks like

Most crypto-backed loans are interest-only with the principal due at the end. You pay the cost of the money each month, and the amount you borrowed comes back in one piece at maturity. Some lenders also allow the interest to accrue and be settled at the end.

This is different from a mortgage or a car loan, where each payment chips away at the balance. On an interest-only loan, the balance on the last day is the same as on the first. If you were expecting it to shrink, you will get a surprise at exactly the wrong moment.

At Arvexo, interest accrues daily on the outstanding principal, is billed on the same date each month, and the principal is due in full at the end of the term. Payments are made in USDC on Ethereum to a repayment address that belongs to your loan alone, so they are matched automatically (how repayments work, how interest is calculated).

One loan, start to finish

Illustrative. A $50,000 loan for twelve months at 12.5% a year, with a 1% origination fee. The loan size and term are chosen for clarity; the rate, fee and mechanics are Arvexo's published terms.

Day zero. You transfer collateral. Once it has the required number of network confirmations, the loan is paid out in USD. The origination fee of $500 is deducted from the principal, so $49,500 reaches you, and interest is charged on the full $50,000.

Months one to eleven. Interest of $50,000 × 12.5% ÷ 12, about $521 a month. Because interest accrues daily, the exact amount varies a little with the length of the month. Eleven payments, about $5,729 in total.

Throughout. Your LTV moves with the market. You can add collateral at any time, with no fee, or repay part of the principal, and either brings the LTV down. Neither is a repayment failure; both are ordinary housekeeping (can I add collateral during my loan).

Month twelve. The final interest payment of about $521, plus the $50,000 principal.

After. Collateral release. At Arvexo, the loan page shows a release option once the final payment is matched; you enter the wallet address, confirm by email, and the transfer is sent, typically within one business day. A release to a newly added address may be held for 24 hours (when is my collateral released).

The totals: about $6,250 interest, $500 fee, $50,000 principal. About $56,750 out against $49,500 received.

Crypto loan APR, interest and fees works through how those costs behave at other terms.

What a missed payment actually triggers

This is the question to ask most precisely, because the answer varies more between lenders than anything else.

Ask: What happens the day after a missed interest payment? Is there a grace period? A late fee? Does a missed payment count as a default, and does a default let you liquidate collateral regardless of my LTV?

That last part is the one that catches people. A borrower can be comfortably within their LTV and still lose collateral if a missed payment is defined as an event of default that permits a sale. The market being fine does not protect you from a missed transfer.

Also ask: How am I notified, on which channel, and how long do I have to fix it?

At Arvexo: if an interest payment is not received by the due date, you are contacted straight away. The unpaid interest is added to your outstanding balance, which raises your LTV. There is a grace period, stated in your final terms, to bring the account up to date; the loan stays active during it, but late fees may apply and the higher balance brings you closer to the LTV thresholds. If you expect difficulty, contact Arvexo before the due date (what happens if I miss a payment). Allow two to three business days for a transfer to arrive before the due date (how repayments work).

Early repayment

Repaying early should be simple and sometimes is not.

Ask: Can I repay in full before maturity, is there a charge, and is it a fee or the remaining interest?

A lender that charges the full remaining interest has effectively locked you into the whole term. One that charges nothing lets you treat a twelve-month loan as a three-month loan if your circumstances change. That difference is worth more than a small gap in headline rate, and it is rarely on the comparison page.

Also ask about partial repayment, which is the more common need. Paying down part of the principal lowers your LTV and moves your margin-call price further away. If partial repayment carries a fee, you have been given a reason to hesitate during exactly the week you should not.

At Arvexo: you can repay part or all of the balance at any time from your dashboard. Partial repayments reduce the principal, which lowers both the interest, from the following day, and your LTV. For a full payoff, the quote shows the outstanding principal, interest accrued to date and any applicable early repayment fee, and is valid until the end of the following business day (can I repay my loan early).

Collateral release

Ask: After the final payment, how long until the collateral is back in my wallet, and what does the process involve?

Same-day, next-day and several-days are all plausible answers. The point is to know which one, especially if you were planning to do something with that collateral immediately.

Also ask: Do I get back the same asset, and the same amount? The answer should be yes for both, and it is worth hearing it said.

At Arvexo: collateral is released once the outstanding principal, accrued interest and any applicable fees have been repaid in full, whether at maturity or early, typically within one business day of the final payment being matched. If your collateral value has risen or you have repaid part of the loan, you can also withdraw excess collateral during the loan, down to the origination LTV in your terms (when is my collateral released, can I withdraw excess collateral).

If you need more time

A loan that reaches maturity before the money does is the commonest repayment problem, and the easiest to avoid by raising it early.

Ask: Can the term be extended or the loan refinanced, how far in advance must I ask, and on what terms?

At Arvexo: contact the team at least ten business days before maturity. Subject to review, the term can be extended or a new loan issued whose proceeds settle the existing balance, with the rate set at current market rates for the new term (can I extend or refinance my loan).

Planning the exit before you borrow

Four things to settle in advance.

Where the repayment money comes from. If the honest answer is "I will sell some crypto", then you have arranged to sell crypto later instead of now, with interest charged in between. That may still be right, but it should be a decision rather than a drift. Borrow or sell runs the arithmetic.

What happens if the money is late. Not whether it might be. What happens.

What you will do if the market falls hard. Write down the margin-call price and decide now whether you would top up or repay part of the loan. A decision made calmly in advance is a different thing from a decision made at 3am. Margin calls and liquidation explains the thresholds.

Whether the term matches the need. A borrower who needs money for eight months and takes a twelve-month loan with a prepayment penalty has paid for four months of nothing.

The quickest way to test all four is to put your real numbers into the loan calculator before you apply rather than after. It will show you the collateral required and the monthly cost, which turns "I think I can manage that" into a figure you can check against your actual bank balance.

Two situations worth knowing about

If collateral is liquidated, that is usually a sale with consequences. It is not a neutral unwinding. In the UK, HMRC treats the liquidation of a borrower's collateral as a disposal for capital gains purposes (HMRC, CRYPTO61640). Tax treatment varies by jurisdiction and by your circumstances, and this is not advice, but the general point holds: a forced sale can leave you with a tax bill on top of the loss. At Arvexo, liquidation is a last resort, only as much collateral is sold as is needed to bring the LTV back within limits or repay the loan, and whatever remains stays in your loan wallet until the loan is settled (how liquidation works).

If debt is written off, that can be income. The IRS states that "In general, if your debt is canceled, forgiven, or discharged for less than the amount owed, the amount of the canceled debt is taxable" (IRS Topic no. 431). A settlement that feels like relief may not be the end of the matter.

Take advice on your own position before either situation arises, not after.

Before you apply

• Confirm the repayment structure: interest-only or accruing, and when the principal falls due.
• Work out the monthly payment in dollars and check it against your actual cash flow.
• Ask what a missed payment triggers, including whether it permits liquidation regardless of LTV.
• Ask what early repayment and partial repayment cost.
• Ask how long collateral release takes.
• Decide now where the repayment will come from, and what you will do in a bad month.

See how an Arvexo loan runs from estimate to funding, then check your numbers in the loan calculator.

Frequently asked questions

Are crypto-backed loans interest-only?

Usually, and Arvexo's are: interest is billed monthly and the principal is repaid in full at maturity. The balance does not shrink unless you choose to repay part of it early.

Can I repay a crypto loan early?

At Arvexo, yes, in part or in full, at any time from your dashboard. The payoff quote shows the outstanding principal, interest accrued to date and any applicable early repayment fee before you confirm.

What happens if I miss a payment on a crypto loan?

Terms vary by lender. At Arvexo the unpaid interest is added to your balance, which raises your LTV, and a grace period stated in your final terms applies; late fees may apply during it. Contact the lender before the due date if you expect a problem.

How long does collateral release take after repayment?

At Arvexo, the transfer is typically sent within one business day of the final payment being matched, to a wallet address you have verified. A release to a newly added address may be held for 24 hours.

Related reading

• Understanding crypto loan APR, interest and fees
• Borrow or sell? A better way to think about liquidity
• Margin calls and liquidation: what every borrower should know
• How to compare crypto lenders: a borrower's checklist
• how repayments work
• can I repay my loan early
• what happens if I miss a payment
• when is my collateral released

Sources

• Internal Revenue Service, Topic no. 431, Canceled debt
• HM Revenue and Customs, Cryptoassets Manual CRYPTO61640, Collateral
• Arvexo Help Center, How do repayments work?
• Arvexo Help Center, How is interest calculated on my loan?

Collateral can fall in value and be sold. This article is for general informational purposes only and does not constitute financial, investment, legal, or tax advice.