Everyone is used to the traditional banking system. When we apply for a bank loan, we already know what to expect: sky-high interest rates, difficult paperwork and processing, limitations, and risking our car or home as collateral. When we deposit our cash, though, interest rates are nearly zero, so all the interest rates turn into the bank’s revenues.
Crypto loans change all of this — it allows you to earn income passively at a satisfying rate, and provides a cheaper and quicker option for people who need quick capital.
Crypto lending uses blockchain technology to revolutionize the traditional financial services industry. Central banks are absolutely essential for any economy in this world; yet, traditional lending comes with very high costs, including interest rates that are set by the same banks that cash in the money.
Crypto lending means that you can lend or borrow money without depending on the interest rates set by banks. As a lender, you can invest fiat money, that is then borrowed by capital-seeking individuals, and get paid a fixed interest rate. As a borrower, you use your cryptocurrency as collateral to obtain access to cash at a fixed interest rate.
Crypto-backed loans are not completely risk-free — nothing is. In many cases, there is no insurance to provide protection in case something goes wrong. Fortunately, a few platforms such as SmartCredit.io go the extra mile to provide extra safety to their users — a loss provision fund.
In general, there are two types of citizens: a group that needs capital and a group that has surplus capital. Crypto loans are designed for both categories. The peer-to-peer DeFi lending platforms allow borrowers to use crypto as collateral to borrow fiat currency. In exchange, they need to pay a fixed interest rate over the term of the loan.
Individuals with surplus capital can also benefit from crypto loans. On the same platform, you can choose a collateralized loan request submitted by a borrower. The borrower will send the collateral into the smart contract, and you will send your funds (fiat money) with one click.
Throughout the term, you will receive the interest paid by the borrower, who will receive their crypto collateral back at the end of the loan. In case of default, the collateral will be automatically liquidated by the system, so you receive your principal and interest payments.
Even more importantly, a few platforms like SmartCredit.io have some extra benefits: there is a loss provision fund that will cover your loss if the collateral liquidation is not enough; additionally, you can use the Personal Fixed Income Fund to automate the whole process and earn on your assets without any hassle.
If you hold cryptocurrency and you want to liquidate it, crypto loans allow you to get fiat money for a fixed period of time without selling it. Alternatively, if you want to use your surplus cash and earn a much higher interest rate than the traditional bank deposits, the crypto loans provided by DeFi lending platforms are the solution.