DISCLAIMER: Please be advised that this article is not intended as investment, tax, financial or legal advice. Interested readers should seek out professional advice for their particular situation.
Cryptocurrency lending has the potential to take over the loans industry as we know it. In essence, it makes the process of getting a loan far easier and has far less requirements than traditional lending methods. However, for many, the idea of crypto lending still seems risky and in some ways, too good to be true.
Is crypto lending really that great? In short, yes! In this article, we’ll walk you through the many advantages of cryptocurrency lending and why you should consider crypto the next time you need a loan.
If you’ve ever applied for a loan at a traditional bank, then you know it’s a lengthy process. When it comes to traditional lending, your credit score matters and will determine how much money you are able to borrow. If you have a low credit score, you might not be able to get the funds that you require. There are several other factors that will also be considered, such as credit history and income.
Once you’ve found a bank that will offer you a loan, you will have to provide a wealth of personal information such as your social security number, proof of employment, bank statements, government-issued ID and more. Additionally, as a borrower you have little control over what the final loan terms are; the bank will dictate your loan amount and interest rate based on the above information.
Borrowing through a traditional bank can be a time-consuming process and nearly impossible if you have a low credit score or are unemployed. But what if you don’t have a bank account? Currently, 1.7 billion adults are unbanked, meaning that they have no bank account, which makes getting a traditional loan impossible.
Cryptocurrency lending solves both of these issues. You don’t need a bank account and on the majority of crypto lending platforms, your credit score isn’t taken into account. Crypto loans have the power to help people get the funds they need when the traditional banks won’t even consider them. It makes getting a loan considerably more accessible than traditional methods and offers everyone financial freedom, which is why it continues to grow in popularity.
When borrowing from a bank, it can take anywhere from a few days to a few weeks for your loan to be approved. It is becoming more common for banks to approve loans on the same day, but it depends on a lot of factors. If you need a loan as soon as possible, obviously this presents some problems.
When it comes to cryptocurrency lending, most platforms will approve your loan within 24 hours. While confirming your ID is usually required, crypto lending platforms aren’t pouring over a stack of documents to determine if you are eligible or not. As long as you have cryptocurrency (or in some cases, fiat currency) that you can deposit as collateral and a piece of government-issued ID, you are eligible for a loan, which is why the process is so much faster.
Some crypto lending platforms may take longer, especially if it’s a peer-to-peer (P2P) network that requires you to find a lender. P2P loans are not instant, and require cooperation between borrowers and lenders. If you want an instant loan, look into other platforms that don’t rely on a P2P network.
If you go to a bank for a loan, you don’t have much of a choice when it comes to your loan terms. The bank will ultimately determine your loan amount and interest rate, and while you can shop around at different banks, there isn’t going to be a big difference between financial institutions.
With cryptocurrency loans, the process is a lot more customizable. The borrower gets to determine how long they want their loan to be for, the loan-to-value ratio (LTV), and what fiat currency or stablecoin they want to be paid out in. The loan amount will depend on how much collateral you have, but the rest of the loan terms are pretty flexible, especially when compared to traditional banking.
Some crypto lending platforms have extremely flexible repayment terms. Some offer no minimum monthly payments as long as the loan is paid back in full by the end of the designated time. You can also find better interest rates; some platforms will offer a lower interest rate if you repay in a specific cryptocurrency.
Cryptocurrency lending platforms pride themselves on transparency, which means that the loan terms are clearly laid out and if there are any fees, they are clearly stated. When it comes to flexibility, crypto lending clearly surpasses traditional banking.
When it comes to fee structures, traditional banks are cumbersome. If you need your loan converted to a different currency for whatever reason, you’ll be hit with a large fee and a poor exchange rate. Ultimately, this means you are losing money, which kind of defeats the whole purpose of a loan.
With cryptocurrency lending, the fee structures are not only clearly laid out, but they are typically lower than those in traditional banking. There’s usually just a one-time service fee and that’s it. Additionally, if you need to be paid out in a different currency for whatever reason, you aren’t going to be hit by exorbitant exchange rates. So if, for example, you’re taking out a loan to help out a family member in another country, you can send the funds to them in their local currency or even as cryptocurrency to avoid high fees and a poor exchange rate at the bank.
The majority of crypto lending platforms provide you with options as to what currency you’d like to be paid out in. Some offer a combination of fiat currency and stablecoins, while others just offer cryptocurrency. Either way, you can always withdraw your stablecoins or crypto into whatever currency you need through an exchange. There are no limitations.
Many people think that their money is safe in a traditional bank. However, banks have been involved with nearly every major money laundering scandal in some way. Banks are run by human beings, who are naturally fallible, and often don’t have the best security measures in place, especially when it comes to technology.
Cryptocurrency lending seems risky to many because of the fact that it is simply a digital currency. However, crypto lending platforms are often far more secure than banks, simply because they have to be. The industry has actively been working to be more reputable, especially in terms of safety. In order for cryptocurrency to become mainstream, the world has to understand that it is just as safe, if not even safer, than keeping your money in the bank.
Any reputable crypto lending platform will clearly outline their security measures on their website. The best will go into detail as to how they protect your collateral. Ideally, 95% or more of user funds should be stored in cold wallets. This means that your crypto collateral is stored securely offline and is virtually impossible to hack. The best crypto lending platforms on the market store 100% of user funds in cold wallets.
Having a secure website is also paramount and any reputable platform will outline what securities they have in place to prevent things like DDoS attacks. Some cryptocurrency lending platforms go even further, and insure all digital assets on their platform. Securing your cryptocurrency is a priority for these platforms, as a failure to keep your crypto safe is a bad look for any crypto lending platform.
While cryptocurrency lending is still relatively new to the loans market, it is making big waves and gaining popularity. As of January 2020, crypto lending has seen a boom in popularity which is expected to continue. The accessibility of crypto lending grants financial freedom to many, which has the potential to change the financial industry as we know it forever.
As a result, we’re excited to bring you the upcoming SelfKey Loans Marketplace. The Loans Marketplace will grant SelfKey Wallet users access to the world’s most exciting lending platforms and users will be able to easily compare and register for crypto lending services. This is an exciting prospect for the SelfKey community and adds impressive new functionality to the Wallet.
If you want to start exploring the SelfKey Wallet now, download it here and keep an eye out for the launch of the SelfKey Cryptocurrency Loans Marketplace.