Cryptocurrency-everything always seems too good to be true, like crypto lending — Is it really that great? We talk about the advantages of crypto lending and how it compares to traditional lending methods.
If you have ever applied to a conventional bank for a loan, then you know it is a long process. Your credit score matters when it comes to traditional loans, and the banks decide how much money you can borrow. You may not be able to get the funds you need if you have a low credit score. There are some other variables, such as credit history and wages, that will also be considered.
When you have a poor credit score or are unemployed, investing through a conventional bank can be time-consuming and almost tricky. But what if there isn’t a bank account for you? 1.7 billion people today remain unbanked, which means that they don’t have a bank account, which makes it difficult to get a conventional loan.
All of these pain points are countered by Cryptocurrency lending. You don’t need a bank account, and your credit score is not taken into account on most crypto-lending platforms. It makes it much more affordable to get a crypto loan than conventional approaches and gives financial security to all, which is why it continues to rise in popularity.
So Agile, So Efficient
It can take a few weeks to months for your credit to be accepted when borrowing from a bank. Although authorizing loans on the same day is becoming more common for banks, it depends on many factors.
Most platforms will accept your loan within 24 hours when it comes to cryptocurrency lending. Although it is typically necessary to complete a Know-Your-Customer (KYC) procedure(like validating your ID), crypto lending platforms do not pour over a stack of documents to decide whether or not you are qualified. You are eligible for a loan as long as you have cryptocurrency (or in some instances, fiat currency) that you can deposit as collateral and a government-issued ID, which is why the process is so much quicker.
The crypto lending process may take longer for some crypto platforms, especially if it’s a peer-to-peer (P2P) network that needs you to find a lender. P2P loans are not immediate and need borrowers and lenders to cooperate. Look at other platforms that don’t rely on a P2P network if you want an instant loan.
In traditional lending, the banks ultimately determine your loan amount and interest rate depending on your credit score.
The method is even more customizable with crypto loans. The loan-to-value ratio (LTV), and what fiat currency or stablecoin they want to be paid out in the borrower will decide how long they want their loan to be. The sum of the loan will depend on how much collateral you have, but the rest of the loan terms are very flexible, especially in contrast to conventional banking.
There are highly flexible repayment terms for certain crypto lending platforms. Some give no minimum monthly payments as long as the loan is paid back in full at the end of the designated term. You will also find better interest rates; if you repay in a particular cryptocurrency, specific platforms can offer a lower interest rate.
Cryptocurrency lending platforms take pride in openness, which ensures that the loan terms are clearly set out and are clearly specified if there are any fees. Crypto lending surpasses conventional banking when it comes to versatility.
Lower Fees & Interest Rates
Traditional banks are cumbersome when it comes to fee arrangements. If you need your loan converted to a different currency, you will be faced with a high fee and a low exchange rate. Ultimately, this means you’re losing cash, which sort of defeats a loan’s entire intent.
Not only are the fee rates expressly set out for cryptocurrency lending, but they are usually lower than those in traditional banking. Usually, there’s only a one-time service charge, and that’s it. Interest rates can go really low in crypto platforms like DigiFinex, where the interest rate is 0.02%. Furthermore, if you need to be paid out in a particular currency, you would not be struck by exorbitant exchange rates.
Let’s say you take out a loan to support a relative in another country; you can send the funds to them in their local currency or even cryptocurrency to escape elevated fees and a low bank exchange rate.
Many platforms for crypto lending give you choices as to what currency you want to pay back in. Some provide a mix of stable coins and fiat currency, whereas others only offer cryptocurrency. Either way, your stablecoins or crypto can always be withdrawn into any currency you need through an exchange. There are no restrictions.
Is it Safe, Though?
Many people are assured with putting their money in a conventional bank. However, banks have been implicated in almost every big money laundering scandal these days. Banks are run by human beings who are inherently fallible and often do not have the best safety measures in place, especially when it comes to technology.
Cryptocurrency lending seems dangerous to several. Crypto lending platforms, in fact, potentially are safer than banks, precisely because they need to be. In terms of safety, the industry has actively worked to be more trustworthy for regulators’ recognition. The world needs to realize that it is just as secure, if not even better, than to hold your money in the bank.
Any sound crypto lending platform would clearly outline their security measures, like how they would secure your collateral. Ideally, in cold wallets, 95 per cent or more of consumer funds will be processed. Platforms would promise that your crypto collateral is safely stored offline and is almost impossible to hack. 100 percent of consumer funds in cold wallets are stored by the best crypto lending services on the market.
It is also crucial for you to make sure that the crypto lending platform has a stable website. Any credible platform would explain what protection it has to avoid attacks like Distributed Denial of Service (DDoS). Some lending platforms for cryptocurrencies go even further and insure all digital assets on their site — These crypto platforms necessitates protecting your crypto.
DDos — This attack takes advantage of the specific capacity limits that apply to any network resources that enables a company’s website to exceed the website’s capacity to handle multiple requests that prevent the website from functioning correctly.
While cryptocurrency lending is still relatively new to the loans market, it is making big waves and gaining popularity. Even Japan’s financial giant, SBI, is debuting a Bitcoin lending service. The accessibility of crypto lending grants financial confidence to many, and we are looking forward to see new crypto innovations that disrupt the economic sphere.
For related articles, read DigiFinex Insights.