Why Is Cryptocurrency Better for Lending in 2025?

Traditional financial systems have dominated the banking industry for decades. That is, until digital banking entered the scene, with online lending businesses becoming more and more popular with each passing year. Online lending offers numerous benefits that allow companies to cut maintenance costs, hence, providing their clients with better rates. They’re also available 24/7 and offer faster decision-making when it comes to loan application review and approval.

Crypto lending hit the financial industry not so long ago and it’s been growing ever since. Cryptocurrency offers new opportunities that allow borrowers to have quick access to loans, while lenders can have a source of passive income. Innovative crypto-backed lending allows to use digital assets in ways traditional financial systems have never done before, giving cryptocurrency new opportunities to enter the lending business game. Nevertheless, despite all the benefits offered by cryptocurrency, there are market fluctuations that make it highly unstable. There’s even a term used by crypto owners — “HODL” (deciphered as Hold On for Dear Life) — which depicts a process of holding onto digital assets despite significant volatility.

Still, simply having cryptocurrency isn’t productive at all, and this is where crypto lending comes in, allowing all those assets to work in their owner’s favor. Instead of just watching your digital money lay dormant in a wallet, you can earn much higher interest rates. Borrowers also have lots of perks when using cryptocurrency as collateral. They can have a hassle-free loan application process and avoid the issues of in-person lending altogether. Crypto lending redefines traditional financial systems by letting you borrow and lend money via CeFi (centralized) and DeFi (decentralized) financial platforms. Let’s dive deeper into what crypto lending is all about and how you can do it.

What Is Digital Lending?

Using decentralized platforms is what defines online lending and sets it apart from its traditional counterpart. Both borrowers and lenders get much more freedom using their assets, retaining full control over them. Most DeFi platforms have a non-custodial nature and operate outside of the usual regulatory frameworks. As far as cryptocurrency is concerned, all the transactions take place right on the blockchain network, thus, creating a transparent ledger that’s not hidden by censorship. If you’re looking for a digital lending company, the online lender LendUp offers good interest rates and a fast application review time. For crypto-backed lending, here’s a list of trustworthy platforms you can try.

• Aave. Dynamic interest rates, Avalanche, ETH, stablecoins.

• Binance Loans. Minute-by-minute interest loans, 30+ cryptocurrencies to choose from.

• Unchained Capital. Bitcoin only. Above 14% APR.

• CoinRabbit. 70+ cryptocurrencies, up to 17% APR.

• YouHodler. 50+ cryptocurrencies, up to 26% APR.

• Rocko. A handy crypto-loan marketplace to compare various interest rates.

How Does Crypto Lending Work?

Crypto-backed loans use specialized platforms to conduct all the operations. These websites provide a seamless exchange of digital assets between lenders and borrowers using cutting-edge blockchain technology. Once you’ve chosen a platform, the process of lending or borrowing is pretty straightforward. Here’s a step-by-step guide that will help you out.

1. Create an account and fill out some basic information about yourself.
2. Deposit cryptocurrency to your account. You can later use it either for lending or for borrowing as collateral.
3. Choose whether you want to lend or borrow cryptocurrency. This involves the type of digital assets you want to work with, the interest rate you want to charge or pay, and the overall length of the loan term.
4. Wait till the platform approves your request.
5. Receive funds to your account (or, if you’re lending, they’ll be deposited to the account of the borrower).
6. Make payments as a borrower (or, if you’re lending, receive regular payments according to your agreement).
7. Once the loan term is over, you’ll need to repay the full amount of it, plus interest. As a lender, you’ll receive all your digital assets back, plus interest.

Photo by Art Rachen on Unsplash

The Benefits of Crypto Lending

Crypto lending offers both lenders and borrowers a lot of perks, depending on whether you choose to use decentralized or centralized platforms. Let’s look at some of its benefits:

• Flexibility. If you compare crypto lending websites to traditional banking, they offer much more flexibility when it comes to early withdrawal and things like customizing your loan terms.

• Mitigate risks by diversifying your investment portfolio. You can use a variety of different cryptocurrencies depending on the platform your choose.

• Potentially high returns. Compared to traditional savings accounts, many websites offer APY’s of 10% upwards.

• It can become a great source of passive income when done right.

• The transactions are fast and easy. The platforms doing the financial operations use blockchain technology for quick and efficient exchange.

• Availability. Crypto lending is inclusive of all customers and can be accessed by a broader audience, including people who can’t use traditional banking systems. Thus, customers from underbanked regions can also use this service.

Conclusion

Cryptocurrency is yet to become a widely popular option when it comes to lending business, but its flexibility makes it a great choice for people who don’t want to get involved with traditional banking systems or don’t have access to them. All in all, the financial operations are done quicker and when it comes to loans, the borrower doesn’t need to wait for a long time to get their application reviewed and approved. Creating an account on specialized platforms is fast and easy. Furthermore, cryptocurrency can also be used as collateral when applying for a loan.