2020 will go down in the books of history for two things that redefined the world: the COVID-19 pandemic and cryptocurrency lending. Indeed, the latter developed as a response to the former, and it is now one of the fastest-growing trends. Cryptocurrency lending and bank lending have the same function of offering loans, but they do that differently. This post takes a closer look at both bank lending and crypto lending to answer the big question, “Which is better?”
Bank Lending: How Does It Work?
Bank lending is one of the common methods people and businesses use to access funds for different purposes. If you have ever applied for a loan, be it a mortgage or personal loan, you probably appreciate the complex application process. Still, this does not guarantee that the loan application will be approved.
Another important thing when borrowing money from a bank is that your credit score and income are carefully reviewed. If you are considered a high-risk party, the loan is offered with a very high interest rate or declined. Some of the benefits of bank lending include:
- You are paid in fiat currency.
- You do not need to own crypto coins.
- The bank takes care of all security issues, and you do not have to worry about the system getting attacked by hackers.
- If you have an excellent credit score, the loan you get attracts low-interest rates.
Cryptocurrency lending involves borrowing money against the crypto coins that you hold in your wallet. You select a good decentralized platform, such as Mantra Dao, and submit your coins to get the cash you want. Then, you get the coins back after repaying the loan together with interest. Crypto lending platforms can be broken down into two:
- Centralized crypto lending platform: These platforms are the most common, and you are required to deposit your crypto coins as collateral to get a loan. If you fail to repay, the coin is liquidated to ensure the lender doesn’t incur losses.
- Decentralized cryptocurrency lending platforms: These are completely different from the centralized crypto lending platforms and banks because they rely on smart contracts to automate loan borrowing and repayment between users. As truly decentralized platforms, no know your customer (KYC) data is collected. Borrowers plug their wallets, define the conditions, and wait for willing lenders. Note that decentralized platforms do not provide fiat trading pairs.
Now that you know how crypto lending works, here are the main benefits that you should anticipate:
- Loans are easily accessible.
- No need for review of your credit score.
- No need to prove your identity.
- You can borrow and lend on crypto platforms.
- Loans are available with more flexible terms.
- Fees are far lower than traditional banks.
- Although some consider crypto lending as risky, it is very secure.
As you can see, cryptocurrency lending through decentralized platforms comes with more advantages than bank lending. So, do not get limited to traditional banking because crypto lending is a better option. Remember always to use the best DeFi platform to enjoy all the above benefits we have listed above and more.