Bank lending has been around for centuries and is still around today. It’s the most popular lending method in existence currently. It has its share of advantages and disadvantages. Yet, one cannot disagree with the fact that bank lending has supported the growth of many industries worldwide. The global economy is dependent on lending made by banks. It’s because people purchase lots of high ticket items after banks lend them money. Hence, bank lending supports many businesses worldwide.
On the other hand, crypto lending is kind of a new kid on the block in the lending space. Yet, it has carved a niche for itself. Crypto lending is a hot topic among crypto enthusiasts for many good reasons.If you look at bank lending and crypto lending on superficial terms, you will find many similarities between them. It’s because both of the lending types allow people to borrow funds. But there are a few structural differences between them.
Are you wondering about the differences between crypto lending and bank lending? We will make it easier for you. In this article, we will discuss the differences between bank lending and crypto lending. Let's dive into it now.
Banks have been around for centuries. Yet, they have not evolved much with time. Most of the banks still have a lengthier loan processing cycle. Thus, banks take weeks to approve and process loans. Their method of approval and processing for loans is still paper-intensive.
In comparison, crypto lending is faster as loan processing takes mere minutes to a few hours at maximum. Crypto lending is a fully-digitized process, and there's no physical paperwork involved at any point. Unlike bank lending, loan applications do not have to go through multiple check-points in crypto lending. Hence, crypto lending is speedier when compared to traditional bank lending.
Crypto lending also offers its users to switch easily between assets. It’s something not possible with bank lending. Both decentralized and centralized lending platforms allow borrowers to deposit one coin and borrow some other cryptocurrencies like stablecoins. The good thing about it is that such transactions happen within a few seconds.
Crypto lending works exclusively with crypto collateral. Crypto lending is beneficial for lenders. It’s because crypto collateral is more liquid than the majority of collaterals in bank lending.
The crypto lending platforms require a borrower to collateralize over 100% of the amount they want to borrow. In some cases, the loan to collateral ratio is as high as 150%. They require such a high loan-to-collateral-ratio because of asset price volatility.
The lenders are also able to liquidate the crypto collateral faster when there's a sudden downward slide in the prices of crypto assets. It helps lenders in reducing their losses from a sudden drop in the prices of the collateralized assets.
Ask any applicant who has tried taking a loan from a bank. They will tell you that the whole experience is very cumbersome. It’s a very lengthy process overall. When a user wants to take out a loan from banks, they will have to prove that they are worthy of it.
Now, how would a user prove that they are worthy of taking out a loan from a bank? They will need a credit score for it. Your credit score will determine if you are eligible for a loan or not. It will also determine how much loan a user is eligible for.
A user with a low credit score or no credit history is likely to get their loan applications rejected. Of course, many other factors will determine your eligibility. But the importance of credit score in bank lending cannot be understated.
There are 1.7 billion people globally that do not have a bank account. It means that they are not eligible for bank loans. When it comes to crypto lending, it does not require a user to have a bank account. Neither does it require a user to have a credit history.
Crypto lending platforms don't even check your credit scores. Hence, anyone in the time of their need can take out a loan from the crypto lending platforms. It means that crypto loans are far more accessible. Thus, crypto lending is gaining popularity worldwide.
A user doesn't have much of a choice when taking out a loan from traditional banks. The banks set the terms about the interest rate, loan amount, and loan period. Of course, the user can visit multiple banks to choose the best loan provider. Yet, there's not much difference in lending terms & conditions across different financial organizations.
When it comes to crypto lending, the borrower has many customizable options, directly available from your couch. The decision about the duration of the loan, choice of currency, or stablecoin, and the loan-to-value ratio is in the hands of the borrowers.
There is no doubt that the loan amount a user can borrow will depend upon the total value of the collateral. Yet, crypto lending is far more flexible when one compares it to bank lending.
Want to experiment with different loan terms, collateral types, and loan-to-value ratios? Check out our crypto loans. YouHodler even provides instant fiat loans using their own fiat fund.
A borrower who opts for a bank loan receives the loan amount in fiat currency. Hence, they do not have to worry about the price volatility of their crypto assets. Nor do they have to worry about exchanging their crypto for fiat currencies of their choice. The users who borrow from banks receive the loan amount in their local currency.
On the other hand, the majority of crypto lending platforms only offer lending in crypto. The non-availability of fiat currency-based loans may dissuade many borrowers. There are only a few crypto lending platforms like YouHodler that allow borrowing in fiat currencies. A user can take out crypto-backed loans in USD, EUR, GBP, and CHF.
One of the main criteria to opt for bank loans over crypto lending is security. When a user signs up for a bank loan, a bank makes sure that the user would be able to repay the loan they borrow from the bank. A user also doesn’t have to worry about the mode of repayment. Nor does the user have to worry about the security of the bank platform. The banks ensure that their loan repayment platforms are secure.
Looking for a loan to purchase a home of your dreams? Perhaps, you want to take out a loan to buy a sedan that you have been eyeing for years? These items are known as the big-ticket items. They cost a lot, and hence, such big-ticket items, are rarely bought without taking out a loan.
The crypto lending market is still in infancy. A loan amount large enough to purchase big-ticket items are still not common in crypto lending. Here's where bank lending still outmaneuvers crypto lending. Hence, a user that wants to take out a loan to buy big-ticket items should opt for bank lending.