As cryptocurrency becomes more popular, the ways you can use it multiply. Crypto lending is next in the series of the expanding things you can use cryptocurrency for— and it has its benefits.
In this article, we’ll cover everything you need to know about crypto lending to allow you to make informed decisions for your financial life.
What Is Crypto Lending?
We’re all familiar with traditional personal loans, but let’s look at online loan platforms like GetCash.com. They provide personal loans in cash without the involvement of institutions, thus simplifying the process for the borrower. The concept is the same with crypto lending, with several key differences.
There are two main components to crypto lending. First, we have cryptocurrency loans that require borrowers to deposit 100% to 150% of crypto collateral. They can access their cash or cryptocurrency loan when they meet the collateral. The payments can be made monthly, weekly, or daily, depending on what suits them as borrowers.
Second, we have deposit accounts that function similarly to traditional bank accounts. Like how you would get interest on your savings in a regular bank, the crypto platform pays interest. The difference is that the interest with crypto can amount up to 8%, giving you a higher return than traditional banks.
You can choose between centralized and decentralized crypto lenders, but the gist stays the same. High interest rates are present in both types, and collateral is necessary as a condition for accessing your loan. While the interest rates vary from platform to platform, the loan terms are typically much shorter than traditional lending.
Is Crypto Lending Safe?
There are upsides and downsides to getting involved with crypto lending. On the one hand, since most loans come with collateral, lenders can liquidate to minimize their losses when a default happens.
On the other hand, since these are not traditional platforms, there are several risks for both borrowers and investors. For example, the collateral the borrower agrees to can lose its value, and some lenders may require them to deposit more of that cryptocurrency to meet the loan terms. Another hurdle is that cryptocurrency is not as regulated as traditional currencies. That means borrowers and lenders aren’t legally protected.
However, as cryptocurrencies become more widely used, several regulators worldwide are trying to fix this issue to make crypto a more pleasant option for everyone.
All in all, we can say that the answer to whether crypto lending is safe or not is not simple. If you’ve already got some experience with cryptocurrency, the experience can be secure as long as you mitigate the risks.
How Does Bitcoin Lending Work?
Essentially, bitcoin lending works just like traditional lending does. You have a lender that loans some of their bitcoin to a borrower, who then repays it with interest. While it’s possible to transfer bitcoin from one e-wallet to another directly, private loans are discouraged to prevent fraud and scams, regardless of which side of the loan you’re on.
Instead, both borrowers and lenders alike should use bitcoin lending platforms. Most bitcoin loans are “peer-to-peer” loans, meaning no institution is involved. In this case, you have a broker as the middle point between the investor and the borrower, thus making the process easier.
Reasons to Get a Crypto Loan
In truth, there are varied reasons people get crypto loans. With practically no restrictions, you can use crypto for any large or small purpose to improve your life. People usually go for it if they need to pay a downpayment on a house, pay off debt, buy a car, or further their education.
There are also many options for getting a crypto loan that meets your needs. You can ask for a dollar loan directly or find lenders that give out loans in stablecoin and other cryptocurrencies.
Conclusion
As you can see, crypto lending is worth looking into. While there are risks for both investors and borrowers, the benefits are certainly nothing to scoff at. With this guide, you’ll be more equipped to enter the world of crypto lending and reap the benefits while mitigating the risks.
