Cryptocurrency loans are on the rise. Indeed, Raconteur has found that it is fast becoming a real alternative to borrowing money from banks. This development is not surprising: many people around the world are already buying, trading and selling cryptocurrencies. After all, crypto is still a currency despite being digital. If you are new to cryptocurrency loans and are choosing between this and personal loans, keep reading to find out which option is best for you.
Cryptocurrencies are assets similar to cars, houses, or stocks. As such, it can act as collateral for loans. A crypto loan using your crypto holdings acts as collateral against liquidity from the lender. One of the popular cryptocurrency lending platforms is Celsius Network – which generated $4 billion in loans in 2019. You can use cryptocurrency lending at your discretion. This type of loan allows you to manage your crypto assets. It also allows the lender to take action — such as acquiring your assets — if you miss payments.
There are two types of crypto loans: centralized finance (CeFi) and decentralized finance (DeFi). At CeFi, the lender controls your cryptocurrency for the repayment period. Meanwhile, DeFi uses smart contracts to ensure that you comply with the requirements.
You must own whatever cryptocurrency the lender of your choice accepts. The most popular are Bitcoin and Ethereum. You will also be required to identify and prove crypto assets.
Since encryption is digital, your assets are at risk of cybercrime and security breaches. The World Economic Forum explains crypto regulation in many countries and thus focuses on improving the protection of investors and consumers. These regulations allow for improved transparency and authorization of transactions, including loans. However, these efforts to protect cryptocurrency consumers are still in their infancy, so it is imperative that you research cryptocurrency lending platforms before making use of their services.
Personal loans can be obtained through a bank, credit union, or money lender. The most common type of personal loan is the unsecured one, and it is often used to finance large purchases such as vacations. You are not required to put up collateral, so the lender will not get your assets if you fail to pay. However, you may face consequences such as additional fees and even lawsuits. On the other hand, secured loans require collateral such as a car or a house. Failure to pay will result in a loss of collateral and a lower credit score, affecting your chances of obtaining future loans. Secured loans are often used for mortgages or car loans.
Anyone in the credit range can get a personal loan. If you want higher chances of approval and a lower interest rate, Sound Dollar notes that applying for a personal loan requires a good credit profile. This includes having a credit score of 670 or higher, which demonstrates your responsibility to pay on time. To improve your score, frequently pay bills on time and avoid increasing your credit limit. You will also need proof of income or employment to guarantee reimbursement.
Because you can get personal loans from money lenders, they may not follow the same privacy rules as banks and credit unions. Thus, your personal and financial data may be used or stolen without notice.
Which one do you choose?
Choose a crypto loan if you have a low credit score and crypto assets that you are willing to risk. Cryptocurrency lenders are not banks, so they will also have lower interest rates. If you have a high credit score and collateral that you can’t risk, look for a personal loan. The only thing you are facing is time. Both loans come with risks and responsibilities, so be careful what you put at stake and always pay your dues on schedule.
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