Today, the prospect of digital banking is centered on the blockchain technology. Cheaper, faster, and cross-border transactions will be accessible to everyone irrespective of their location. Remarkably, if the principle of peer-to-peer lending is applied, it means that even the underbanked, unbanked, and those with bad credit history will have the opportunity to take crypto backed loans at fairer interest rates. Many supporters of crypto loan believe that peer-to-peer crypto lending opportunity promises a level playing field for everyone including borrowers and investors. Today, we have various platforms that provide crypto backed loans including InLock.
What Are Peer-to-Peer Lending Marketplaces?
Since the introduction of crypto loans, it has provided consumers a feasible alternative to traditional bank loans. Furthermore, it has also created a new and profitable investment opportunity for well-informed investors. Interestingly, investors enjoy lower interest rates, less bureaucracy, and better loan approval rate when using crypto backed loans, unlike the traditional loan system.
Currently, the cryptocurrency ecosystem is thriving with the Fintech world on the brink of another significant revolution as peer-to-peer lending is close to an upgrade. Presently, Initial Coin Offerings are held to raise funds for the expansion of various platforms infrastructure, which will enable the startup of different crypto related services and products.
For those who are new to the cryptocurrency marketplace, may not fully understand what peer-to-peer lending marketplace is all about. A peer-to-peer lending marketplace is an online platform that links borrowers including organizations and individuals with investors also known as lenders. Unlike our traditional banks, these platforms neither hold or loan funds instead, they arbitrate between lenders and borrowers while expediting the process. However, peer-to-peer providers get their income from fees and commissions paid by the different parties involved in the borrowing/lending process.
How Does Crypto backed Loan Work?
By taking advantage of the blockchain technology, these peer-to-peer lenders provide a cheaper, faster, and transparent service to both borrowers and lenders. Crypto backed loans are also known as instant cryptocurrency loans because the blockchain-powered transactions are incorruptible, instantaneous with no transaction fees. Nevertheless, using blockchain to facilitate peer-to-peer lending lies in three key benefits. These are:
Geographical diversification: Crypto coins allow cross-border lending, which provides different benefits to both lenders and borrowers. The prospect of diversifying investment portfolio through different countries is the most prominent benefits for lenders. On the other hand, borrowers benefit from a worldwide pool of lenders irrespective of their location.
Lower fees: Unlike the traditional loan system that requires peer-to-peer providers to cooperate with banks especially when lending in fiat currencies. Painfully, these banks conduct all transactions on their behalf while transferring every cost incurred during the process to the lenders and borrowers through fees. Nevertheless, crypto backed loans are different from bank loan system because they can run at lower cost and makes it cost effective for all parties.
No bank account needed: Statistics have shown that about 40% of the world’s population is unbanked. Interestingly, crypto loans are relevant in markets with low bank penetration but have internet access. Through cryptocurrencies, you can lend and borrow cryptocurrency without having a bank account to your name.
Disclaimer: This content does not necessarily represent the views of IWB.