Cryptocurrencies have entered the mainstream, and they are redefining financial transactions. Today, these coins are lent and borrowed. This industry is making waves, partly because the process has many advantages over fiat loans.
Crypto loans, such as the Litecoin loan, have only been available for a couple of years. The only similarity between them and bank loans is that they let people borrow funds. Everything else is drastically different.
You may borrow money from banks for a wide range of purposes, from buying a house to launching a company. The application process is quite lengthy, as the lender must confirm your creditworthiness by looking at your credit score, income, employment situation, assets, etc. To do this, it uses your personal data, such as your Social Security number, bank statements, ID, and proof of employment. Besides,
- the applicant has little to no control over the terms of the final agreement;
- the bank decides how much interest to charge you;
- after the agreement is signed and the funds are received, you have to make monthly payments to pay off the debt gradually.
Crypto coins may be borrowed on centralized and decentralized platforms. The first arrangement is similar to conventional lending, as the platform itself manages the payments.
- The platform takes responsibility for identity verification, KYC checks, and custody.
- Usually, a borrower must deposit crypto coins as collateral, and this deposit is returned after the debt is paid off.
- In case of default, collateral is liquidated.
- At least one fiat currency is involved.
- The user must still share personal information, such as a credit card number and postal address.
In this system, borrowing is based on smart contracts and is limited to digital assets. Loans and repayments are distributed automatically. Moreover, no KYC data is collected. All you need to do is to connect your wallet, determine your preferences and wait for a lender who will agree to them. The process is faster and cheaper than centralized lending and bank loans. On the downside, customer support may not be available, so novices feel confused.
- Crypto loans have important advantages over conventional forms of lending.
- They are more accessible, as you do not need a bank account or a credit score.
- As lending takes place on cryptocurrency platforms, you may earn interest on your coins.
- The lending terms are more flexible.
- The costs are lower than bank fees.
- Sometimes, borrowers do not have to make monthly installments — instead, they just repay their debt in full at a specified time.
To conclude, although cryptocurrencies are viewed as a risky asset, digital landing is actually very secure. Every reputable platform has rigorous security protocols, and it ensures the protection of collateral. Clearly, the pros outweigh the cons.