Bank Loans vs. Crypto Loans
Bank loans have been a reliable lending source for centuries, but with increasing cryptocurrency popularity, they became one of the biggest competitors. So, let's consider the advantages and disadvantages of both.
1. Crypto lending is more accessible
If you've ever applied for a loan at a traditional bank, you know it's lengthy. However, your credit score matters when it comes to conventional lending and will determine how much money you can borrow. Thus, if you have a low credit score, you might not be able to get the loan at all. Several other factors, such as credit history and income, will also be considered.
Once you've found a bank offering you a loan, you must provide 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 the final loan terms; the bank will dictate your loan amount and interest rate based on the above information.
Borrowing through a traditional bank can be time-consuming 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 they have no bank account, making getting a traditional loan impossible.
Cryptocurrency lending solves both of these issues. You don't need a bank account, and your credit score isn't considered on most crypto lending platforms. Crypto loans can help people get the funds they need when traditional banks don't even consider them. It makes getting a loan considerably more accessible than conventional methods and offers everyone financial freedom, which is why it continues to grow in popularity.
2. Crypto lending is a fast process
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 several factors. If you need a loan as soon as possible, obviously this presents some problems.
When it comes to lending in cryptocurrency, most platforms will approve your loan as soon as you deposit funds into a collateral account. If you have a cryptocurrency (or, in some cases, fiat currency) that you can deposit as collateral, and you have provided your government-issued ID, you are eligible for a crypto loan. However, some lending platforms like CoinDepo do not require having a collateral account at all (Learn more).
3. Crypto loans offer more flexible loan terms
If you go to a bank for a loan, you don't have much choice regarding your loan terms. The bank will ultimately determine your loan amount and interest rate. Although you can request loan terms from different banks, there is not much difference between financial institutions.
With cryptocurrency loans, the process is a lot more flexible. The borrower gets to determine how long they want to borrow, the loan-to-value ratio (LTV), and what fiat currency or stablecoin they wish to be paid out. The loan amount will depend on your collateral, but the rest of the loan terms are flexible, especially compared to traditional banking.
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.
Some crypto lending platforms have highly flexible repayment terms. For example, 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. When it comes to flexibility, crypto lending surpasses traditional banking.
4. Crypto lending has lower fees
When it comes to fee structures, traditional banks are unmanageable. For example, if you need your loan converted to a different currency, you'll be hit with a hefty fee and a poor exchange rate. Ultimately, this means that you simply lose money from the loan received.
With cryptocurrency lending, the fee structures are not only laid out, but they are typically lower than those in traditional banking. Additionally, if you need to repay a loan in a different currency, you will not 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 cryptocurrencies or stablecoins to avoid high fees and a poor exchange rate at the bank.
Most crypto lending platforms provide options for which assets you want to borrow. Some offer a combination of fiat currency and stablecoins, while others provide only cryptocurrencies and stablecoins. Either way, you can always withdraw your cryptocurrency or stablecoins into whatever currency you need through an exchange.
5. Crypto lending is safer
Many people think their money is safe in a traditional bank. However, banks have been involved in nearly every major money laundering scandal in some way. In addition, 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 it is simply a digital currency. However, crypto lending platforms are often far more secure than banks. The crypto industry has actively worked to be more reputable, especially regarding safety. For cryptocurrency to become mainstream, the world must 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 its security measures on its website. The best will go into detail as to how they protect your collateral. For example, most user funds should be stored in cold wallets. This means your crypto collateral is stored securely offline and virtually impossible to hack. The best crypto lending platforms store up to 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.
Disclaimer: Please, note this article is not intended as investment, tax, financial or legal advice. Interested readers should seek out professional advice for their particular situation.