Crypto vs Conventional Loans: Key Differences Explained

Crypto vs Conventional Loans: Key Differences Explained

2021 has been a landmark year for cryptocurrency so far, with the rise of crypto vs conventional loans being one of the most significant developments. In January, the combined market value of all crypto assets across the world exceeded $1 trillion for the first time, becoming equivalent to the fifth most circulated currency in existence.

But whereas any value from holding cryptocurrency has generally sprung from buying low, holding on to the stock as its worth appreciates and then selling it on for a profit, the advent of lending in the sector has introduced the concept of crypto interest. Crypto loans are similar to traditional loans but differ in key ways. These differences lead to better outcomes for everyone involved.

Crypto loans vs conventional loans

Traditionally, to borrow from a bank, a person must submit a loan application. This includes proof of a good credit history and collateral for the loan. The borrower then pays interest over the loan’s duration, often ending up paying more than the original loan amount.

Crypto loans work similarly but without banks. Instead, they use crypto lending platforms. Lenders are directly connected to borrowers. The profit from the interest goes straight to the lender, with the platform taking a small fee.

Lucrative for lenders

By cutting out the middlemen of banks, the non-custodial set-up of certain crypto loan platforms means that only the borrower and the lender have access to the assets in question. This means that rather than taking the tiny percentages of below 1% that are being offered by most high street banks on their current and savings accounts, lenders can take the lion’s share of the profits.

What’s more, those profits themselves are far higher than they are in the non-crypto world. The unique arrangement of the crypto loan system means that interest rates can be many times higher than with fiat currencies, including earnings of up to 15%. That’s considerably more than any comparable market on the product these days, which is why crypto lending is becoming increasingly popular as a method of passive income for investors.

Borrowers in the driving seat

Borrowers also benefit from crypto loans. They can take advantage of low collateral ratios and a wide range of collateral options. Providers like SmartCredit.io offer access to finance that would otherwise be unavailable. Unlike traditional loans, there’s no credit check, and borrowers can set their own terms.

Crypto loan transactions are processed digitally, making them faster than traditional loans. Blockchain technology ensures these transactions are secure, preventing fraud or theft.

While crypto loans carry interest, this is an advantage. Borrowers get access to a wider range of options quickly. Lenders can earn passive income without intermediaries taking a cut.

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