Crypto Loans vs Bank Loans
Traditionally, getting a loan would involve multiple steps at a bank. First, you would need to fill out a form to apply for a loan, then the bank would assess things like your credit score and repayment history. After that, the bank determines the appropriate amount for the loan and then gives interest rates and stipulations on how to repay the loan. Now that process is changing. The technology behind cryptocurrency has made it possible to offer loans on a blockchain. This means no more banks! The loans themselves are a bit different than the loans you would receive from a bank. Let’s take a look at the types of loans, how they differ from a bank loan, and why it benefits people to get loans through crypto companies instead of traditional banks.
There are a few different types of loans you can get through cryptocurrency. The main types are decentralized and centralized loans. These are exactly what they sound like. The decentralized loans (DeFi) don’t have a central point of authority, examples would be like Compound and Aave. Centralized loans (CeFi) are also offered but these have a central place of authority, an example would be Hodlnaut. In these cases, the company helps with the on boarding process and often requires KYC. There are lending platforms that you can also use like Blockfi or Cobalt Lend. In the case of Cobalt Lend, the funds for loans are governed by community members who vote on the best use of funds from a liquidity pool.
Crypto loans are a little different from regular bank loans because in lots of cases, you don’t have to show credit scores and in some cases, you don’t even have to prove your identity. You simply put up some collateral (cryptocurrency) and get a loan based on the amount you collateralized. There are no lengthy forms. This makes it easier for people to get loans. Getting loans via crypto also makes repayment more manageable because these loans aren’t subject to high interest rates like loans that come from a bank. Don’t worry, the lenders still get rewarded for lending but not at the extreme rate banks get paid through their high interest rates. In fact, banks are able to charge high interest rates because in the past, there’s been nothing to challenge them except for other banks. This is how banks make their money off of you.
There are lots of advantages for getting a loan through crypto instead of through a bank. One perk is that the loans are secure because they’re run by blockchains. Another bonus is that everything is transparent. Since it’s carried out on the blockchain, there is no fine print, everything is laid out for both the borrower and the lender and the terms can be reviewed by either at any time. Best of all, both parties can rest assured that the terms cannot be changed without the other party knowing. That’s the power of blockchain. The advantages to getting a crypto loan don’t stop there. As stated above, loans are easier for people to get. That means that even if your credit score is bad, you can still get the help you need. All that’s required is some form of collateral. The way collateral works is that you put up a specific amount and that amount is returned at the end of the loan, provided you’ve repaid the loan in full. It’s important for people to be able to get the help they need because this empowers small businesses and entrepreneurs. In turn, that means that actual work is being done to level the playing field between small companies and big corporations.
So, with different options and tons of companies ready to give out loans, people can begin to build and not worry as much about funding and whether or not they’ll be able to get a loan from a bank. No more worrying for the small guy! It’s not just for smaller businesses though. Bigger companies can take advantage of this new loan system as well. The point is that finally banks are being challenged and at this point, they can either readjust or move aside as the DeFi craze puts personal finance back into the hands of the people who need that power the most. For more information you can visit the Celcius website or you can take a look at Cobalt Lend. Both platforms make it easy to lend or borrow!