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Cryptocurrency, Featured, Financial Freedom

Potential of Crypto Loans in the Path To Financial Freedom

Financial freedom is the sense of liberty that people experience about their financial status. Although it may mean different things to different people, there are some common features of achieving financial freedom. It includes having better financial security, goal fulfillment, reserve money, and accumulation of adequate transgenerational wealth. Unfortunately, due to the flawed economic policies of governments, many people still do not have financial freedom. However, cryptocurrencies and particularly crypto loans have the potential to free many people from the shackles of financial inequality, and deprivation, and lead towards financial freedom. Therefore, it is essential to discuss some of their essential features. 

Types of Crypto Loans

Crypto loans are a kind of secured loan in which crypto holdings are used as collateral in exchange for liquidity. In crypto loans, one can make payments and pay the loan amount in full and gain all cryptos by the end of the term. Crypto loans can be broadly classified into four types, collateralized, uncollateralized, crypto line of credit, and flash loans. 

Collateralized Loans

This is the most common type of crypto loan and needs deposited cryptos that can be used as collateral. There are many platforms that provide these loans. Most have lower loan-to-value. This is helpful since it reduces the interest rate and has fewer risks.

Uncollateralized Loans

In the realm of crypto loans, uncollateralized loans are less popular and share many similarities with personal loans. These loans are riskier than collateralized loans because of the absence of collateral in the event of a loan default.

Crypto Line of Credit

Some crypto exchange platforms offer a crypto line of credit by borrowing a certain percentage of deposited collateral. This differs from offering traditional loans because it lacks a predetermined term length and sometimes there are no defined repayment conditions. 

Flash Loans

The crypto exchanges also provide instantaneous flash loans. These carry a high degree of risk and take advantage of market arbitrage. Giving flash loans may include buying cryptos at a lesser price in one predefined market and then selling them at a higher price elsewhere.

Attractive Features of Crypto Loans

Crypto loans have several attractive and beneficial features for both individuals and business entities. These features will lead to better decentralization, ease the process of financial equality, through inclusion, and finally pave the way for financial freedom. These features are as follows:

Lower Interest Rates

Crypto loans generally charge lower interest rates compared to ordinary loans such as car loans, and mortgages. In most cases, the interest rates are lower than conventional personal loans and credit cards. Some offer a maximum loan-to-value ratio to lessen the financial burden on the borrower. This particular feature is critical for achieving financial freedom. A high-interest rate loan may push individuals and businesses towards an endless debt trap. The reverse is true if one takes and uses crypto loans judiciously.

No Credit Check

Crypto lending exchanges and platforms generally do not run a credit check such as testing one’s CIBIL score. Therefore, it is an attractive financing option for the unbanked and underprivileged section of the population. Mainstream loan-providing institutions such as banks often reject applications from poor and underprivileged people by citing credit checks as a valid reason. This is the reason, financial inequality and deprivation persist. No such checks exist in most crypto lending platforms right now. 

Quick Funding

Time plays a crucial role in determining the value of money. Many conventional loans take too much time since they require fulfilling many procedures. This is one of the reasons people often feel hesitant while taking loans. However, crypto loans need less time. It usually takes only a few minutes to process and has only 2 steps, account creation, and identity verification.

The other attractive features of crypto loans include:

  • Can be used for multiple purposes
  • Flexible loan terms
  • Selling crypto holdings is not mandatory

Also Read- Overview of Asset Management Solutions in Decentralized Finance (DeFi)

Bottom Line

Crypto loans have all the positive features of decentralization and can genuinely pave the path to financial freedom. In the near future, there is a high possibility that cryptocurrencies will gain enormous worldwide acceptance and eventually make crypto loans the most sought-after financing option. Features like no credit check, quick funding, and relatively low interest rates can significantly narrow the gap of financial inequality. 

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