update 19 August 2021

Comparison of Crypto Lending and Bank Loans; Which One’s Better?

Banks have for years been in the financial industry and are considered the backbone of the financial world. Banking networks have been providing a vast array of 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 involved 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 is clouded by many issues. However, the advent of crypto opened the lending market to a whole new audience who did not consider part of the mainstream market before.

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 proving 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 the 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 earned by depositors in bank lending, the crypto lender gets better profits. 

Many peers to peer crypto lending platforms allow the loan 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 gives the lender the ability 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 to be paid for being the escrow or providing a security guarantee between the lender and borrower. Therefore, the lender can earn a maximum amount of income for the loans they offer. 

Crypto Lending has Faster Transaction Speed.

Banks have for centuries been offering excellent services, but over the years, their transaction dependency and speed have been slower. Primarily, bank lending takes very long because of the processes involved in the approval of any loans. Foremost, they need to check the credit status and know if you genuinely 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 when it comes to 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 found 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 by 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 do not change, as such 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 both benefit vastly from their loans. 

Conclusion 

After comparing bank and crypto lending, it’s clear the crypto lending 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 the concise form of interest. 

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Other benefits include transaction speed, flexibility, accessibility globally, fewer regulations, and more collateral options. Generally, crypto lending, if given more time, is going to either advance or replace bank lending. Therefore, when it comes to benefits, crypto lending is better than fiat.

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