Get the weekly summary of crypto market analysis, news, and forecasts! This Week’s Summary The crypto market ends the week at a total market capitalization of $2,17 trillion. Bitcoin continues to trade at around $62,300. Ethereum experiences no changes and stagnates at around $2,400. XRP is down by 2%, Solana by 1%, and Dogecoin by 3%. Almost all altcoins are trading in the red, with very few exceptions. The DeFi sector decreased the total value of protocols (TVL) to around…
Comparison of Crypto Lending and Bank Loans; Which One’s Better?
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Banks have been in the financial industry for years and are considered the backbone of the financial world. Banking networks have provided various services, including lending, saving, and borrowing. However, this guide will focus more on the lending part of banking systems.
Lending involves allowing others to get money but sign an agreement of future payment of the lent sum. The interactions between the parties involved in a lending contract and the interest rates will help determine the best option between crypto lending and bank lending.
Bank Lending
Bank lending involves the use of banking institutions to obtain loans. There are many ways of lending in banking institutions, including giving just short-term overdrafts and giving loans with debit cards.
While the concept of lending in banking has been successful, the idea needs to be updated by many issues. However, the advent of crypto opened the lending market to a new audience that was not considered part of the mainstream market.
Crypto Lending
Crypto lending is a type of crypto banking and financial system that allows enthusiasts of the crypto world to borrow crypto loans. Crypto lending is one of the best ways for crypto investors to get returns without selling their coins.
In crypto lending, the lenders lend out their crypto assets and wait for the duration to be over before receiving the investment plus interest.
Comparing the Benefits to Lenders and Depositors
Bank Benefits to Depositor
The interest rates in crypto lending are also more beneficial to the lender than those in fiat lending. As mentioned earlier, banks have fixed interest rates, which help in benefiting the lender(depositors)
According to Investopedia, many banking institutions pay an interest rate of less than 1% to the depositors whose money they use to lend. On the other hand, these banks average 3%-4% when lending out loans to external parties.
Therefore, the interest rates charged in banking institutions bring very little income to the actual lenders. Primarily, if you deposit $1k in your bank account(lend), you expect to earn an income of $10 in interest at the end of the year. On the other hand, the bank could make up to $30 from loaning out your money.
Therefore, it can clearly say that the rates that bank lenders earn from lending out the depositor’s monies are higher. Generally, banks make lots of money from lending, but real lenders earn very little.
Crypto Lending Benefits to Lenders
In terms of benefits to the lenders, crypto lending stands out as a better option than bank lending. Foremost, the interest rates/dividends on lending in crypto depend on the assets lent out.
Some assets have very high-interest rates hitting almost 12% or more on average. At the end of the year, a lender may get about $120 from an initial investment of $1k. Comparing this dividend to the interest from depositors in bank lending, the crypto lender gets better profits.
Many peers to peer crypto lending platforms allow the parties to customize their loan requirements. For instance, the lender can set up the minimum loan interest they can charge for the amount of loan offered. Allowing the lenders to set custom loan terms allows the lender to earn more income than bank lending.
Furthermore, in most cases, crypto lending does not involve intermediaries in the lending process. Instead, they use a platform that only requires a small fee for being the escrow or providing a security guarantee between the lender and borrower. Therefore, the lender can earn a maximum income for their offer loans.
Crypto Lending has a Faster Transaction Speed
Banks have been offering excellent services for centuries, but their transaction dependency and speed have been slower over the years. Primarily, bank lending takes a very long because of the processes involved in approving any loans. Foremost, they need to check the credit status and know if you can pay the loan back with interest.
Furthermore, banks take longer to get those details from different sources, including credit bureaus and other information platforms, and lengthen the loaning process. On average, a person taking a big loan may be required to present themselves physically to the banks on every step of the lending process, meaning the process may take weeks to complete.
However, crypto lending is proving better than bank lending regarding processing time. Unlike loans which may take weeks to complete processing, crypto lending takes a few hours. This is because it’s fully digitized, and all the necessary information is on the blockchain.
One more advantage is that crypto lending offers a variety of assets during the lending process. For example, a user can use one coin as collateral and receive another asset, maybe a stablecoin or a token—the availability of various options and the fast rates of transactions make crypto lending better.
Crypto Lending is More Flexible
Another advantage that crypto lending has over bank lending is the interest rates. Both lenders and borrowers can quickly maximize their incomes with the flexible interest rates charged in crypto lending.
Banking institutions have some form of fixed lending rates which are sometimes expensive and fixed. However, these loan terms remain the same, which may prove inconvenient for the average borrower.
However, the interest rates are highly flexible in crypto lending and can be customized to the lowest. Therefore, the average borrower and lender can benefit vastly from their loans.
Conclusion
After comparing bank and crypto lending, it’s clear that it is already proving to be miles ahead of bank lending. Foremost, when it comes to interest for the lenders, the lender can make a high income by customizing the loan terms in crypto lending. Even more, the housing platform takes a concise form of interest.
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Other benefits include transaction speed, flexibility, accessibility globally, fewer regulations, and more collateral options. Generally, if given more time, crypto lending will either advance or replace bank lending. Therefore, when it comes to benefits, crypto lending is better than fiat.
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