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Crypto lending is new, but bank lending has been around for a long time. Though cryptocurrencies have become a new sensation now, still, bank lending is popular among lenders. Crypto lending is also gaining massive adoption, proving it has the potential to offer something unique.
Let’s find out how crypto lending is different from bank lending.
Let’s get started.
Crypto Lending & Bank Lending
Crypto lending is one of the hottest topics in the crypto world. Crypto lending is defined as lending digital assets through crypto lending sites or crypto exchanges. The lender/investor opens an account, deposits their cryptos, and then earns an agreed interest rate paid by the borrower. Interest comes in the same currency they deposit in an exchange.
On the other hand, banks also lend you money, and you have to pay it back in the future by paying an extra amount as interest.
Both types of lending allow borrowers to borrow money. This is their only similarity because they are considerably different from each other.
Crypto Lending vs. Bank Lending
1- Crypto lending offers fast processing as compared to lengthier bank processing
Banks have been around for centuries. The first-ever bank was founded in 1472, but still, most banks have a time taking processing cycle. The same happens when one applies for a bank loan. It takes weeks to approve and process bank loans. Despite so much advancement in technology, banks still involve a large amount of paperwork.
On the other hand, crypto lending processing is faster. For example, opening an account with bit index ai quick and simple and only takes a few steps. It does not involve any paperwork at any point and is entirely a digitalized process. You do not have to go through different checkpoints, saving a lot of time.
2- Crypto lending allows switching between assets, but bank lending does not
Banks allow you to lend in only one fiat currency such as USD, CAD, EURO, etc. In comparison, crypto lending will enable you to switch between assets easily. Borrowers can deposit any coins and can borrow some other cryptocurrencies, such as stable coins.
3-Crypto collaterals are more liquid than collaterals in bank lending
Crypto lending is based on crypto collaterals. Some crypto lending platforms require a high loan-to-collateral ratio such as 150% because of the highly volatile nature of crypto assets. This proves very beneficial for crypto lenders. They can quickly liquidate crypto collaterals if there is any sharp decrease in the market prices of cryptos. Lenders can reduce their losses.
However, in the case of bank lending, it is not so easy to liquidate collaterals. It can take longer, and the lender may have to bear some losses.
4-Crypto lending does not check credit score, but bank lending requires a credit score
Bank lending needs a credit score to check if you are eligible for a loan or not and to determine how much loan you can get. There are more than 1.7 billion unbanked people globally. It means they cannot even apply for a loan.
On the other hand, crypto lending platforms do not check credit scores. You can get a loan even if you have a poor or no credit history. Crypto loans are more accessible as anyone can get a crypto loan in time of need.
5-Crypto lending is more flexible as compared to bank lending
Banks have set terms and conditions for the loan amount, loan period, interest, etc. Users do not have many options in the traditional banking sector.
In crypto lending, the borrower can avail of many customizable options. They can decide about the time, currency, loan-to-value ratio, etc. The loan amount does depend on the value of collateral, but users have many options, making crypto lending a flexible option comparatively.
The bottom line
Crypto lending has many advantages over traditional bank lending, but there are some risks associated with it, which you must consider before choosing it. Crypto lending platforms are not insured. Since crypto lending is wholly digitalized, there are chances of hacks and online attacks.
Crypto lending is still in its infancy. Therefore, there is ample room for improvement. A large amount of funds for buying a home, for example, is not common in crypto lending. Here bank lending can help.
Either crypto lending or bank lending, you must consider all terms and conditions before applying for a loan.
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