Opting for a crypto loan is both a practical and attractive option for most borrowers, given the impressive growth of crypto currencies these days. Read on to get a detailed insight into how you can apply for a crypto loan.
Everyone knows about traditional bank loans. But the process of lending has changed in the last few years with the entry of virtual currency. Getting loans with them is the new norm. People prefer this option to the traditional one for several reasons. For one, it is less complex compared to the traditional choices.
Cryptocurrency is a digital currency, meaning that it does not involve cash. So, storing it is relatively easier than that of cash notes as long as the password of a digital wallet is secure. However, aside from storing, owners of digital currency also look for ways to grow it instead of just keeping it in their digital wallet for several months or years.
Cryptocurrency lending is one of the best ways to grow one’s digital wallet. It is beneficial for both lenders and borrowers alike. It enables the former to get a handsome reward in the form of interest on their stashed digital assets.
On the other hand, borrowers get to unlock their digital assets and enhance their value. At the subsequent stages, it serves as collateral that helps them get a loan at a low rate of interest from either a financial institution or an individual.
If you are impressed with this idea and wish to try your hand at it as a borrower, you have already made a major financial decision. But unless you are well versed in it, you may have some questions in mind. For instance, you might wonder how to get started with crypto lending on the right foot.
Read on to gain an understanding of how crypto lending works. Looking to explore online bitcoin gambling instead, check out these bitcoin casino free spins.
Popular options to get a crypto loan
Do you have major plans concerning Bitcoin or crypto lending? Are you unsure about the method to get started with it? You can think of the following options to begin your journey for receiving a Bitcoin loan:
● Centralized lending platforms
● Decentralized lending platforms
Both these options are popular. But you might want to know about both of them in detail to compare their features and make an informed decision.
How to get a crypto loan through a centralized ecosystem (CeFi)
Let’s first begin with centralized ecosystems. With this option, you can choose channels like Binance, Nexo, or BlockFi. To begin with, you must create an account with these platforms and comply with the stated procedures before proceeding with the other steps. This step is important to be safe from financial fraud but also the possibility of money laundering.
The best part about these platforms is their system to protect your collateral. Most of their protocols are dedicated to this task. For securing your collateral, these platforms will either use insurance or retain a major portion of your digital assets with themselves, meaning that it will not be available for use.
That said, these platforms keep a note of all the digital transactions by using blockchain technology. What it means is that whether you withdraw or deposit Bitcoins or any other cryptocurrency, it will be visible to you. The availability of transactional records makes it simple and easy to monitor the transactions over time.
As a benefit, you get the opportunity to make a profitable income through an interest in Bitcoin. In case you wish to use a different cryptocurrency other than Bitcoin, you can consider options such as DAI or USDC.
With all the benefits on offer, you must also consider the aspects that deserve your attention. Beyond any doubt, centralized platforms offer up to an 8% interest rate on cryptocurrencies which is simply impressive. But you need to do your research and homework right before finalizing your decision.
Going by the interest rates alone, no matter how good they are, can be misleading. You also need to consider the features that a platform has on offer. This simple and effective rule will always keep you on the right track. More importantly, you will be able to bypass the need to splurge on fees.
As far as central ecosystems or CeFi platforms are concerned, they involve paperwork at a greater length. On the surface, it can look like a time-consuming procedure.
But on a positive note, it has a systematic procedure due to which things happen in a well-regulated manner. Also, such platforms offer assistance to people through professional customer service. As a result, you can expect to get solutions to most issues.
How to get a crypto loan through a decentralized ecosystem (DeFi)
Unlike the involvement of people, DeFi lending platforms use codes for handling transactions. Popular services also use automation in conjunction with protocols and algorithms to process the payout of loans.
A noteworthy or hallmark feature of decentralized platforms is their transparency. Easy access to protocols makes a decentralized platform an open system with easy-to-access protocols. Also, decentralized ecosystems do not involve any KYC verification process.
A decentralized platform offers a comparatively lower interest rate compared to a centralized platform. It uses smart contracts under which, as a borrower, you need to apply for a loan and then determine or choose crypto linked with the lending platform. This will be used as collateral.
On a DeFi platform, you can apply for a loan of almost any size. It will support your applied loan through stable coins, BTC, cryptocurrencies, or Ethereum. But be careful, though. Do your research well to ensure you do not end up being a victim of scams such as exit scam.