Will DeFi Solve Loan Problems?

One of the major problems we have in loans is that it is quite hard to get, and the interest repayment rate is also very high, this discourage people from taking it. It is also handled by centralised authorities like banks, or Microfinance banks. In my country, there are companies branded as loaning companies, their job is to loan money to people who need it, it is supposed to be easier to get loans from these loaning companies compared to the banks, but these companies placed a very high interest rate on their loans, making it very difficult for any one taking out this loan to pay back. At least this is one of the difficulties most people experience from taking loans in my country. While its hard for some people to get loan, it is also very hard for these banks or loaning companies to get their money back after they have give out loans to people. I dont know how the loaning process goes in other countries, but I can’t help but think that there might possibilities that some other countries will also have problems with loans too.

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Something you should have taken note by now is how crypto is trying to help our daily problems that need third party interactions, crypto wants to eliminate that third party figure by adding decentralised ways to replace them. DeFi is decentralised finance, which is on the blockchain, working based on smart contract. The high interest rate thingy is something that DeFi can help reduce, in my country, people pay more than 20% interest while trying to pay off loans, but receive less than 10% interest while saving in fixed deposit, this means that the bank takes the other share. Sometimes the bank has to literally chase the debtors physically to have them repay their loans. Some people can forge documents of collaterals and take loans with them. Some people can use collateral that is already in dispute to collect loans. Soo in as much as there are difficulties in trying to take loans from banks or loaning organisations, the banks and loaning organisations also face their own problems.

in DeFi, this can not happen, because some certain DeFi loans will need some crypto asset collateral before you get granted the loan, its a smart contract which is a program that when certain conditions are met, executes a command. If you want to take $200 loan, you will have to have a $300 collateral, this way when you default your loan payment, the smart contract will take that from your collateral. But this will be done at a low interest rate, debtors will have to be more disciplined with their loan repayment agreement.

Posted Using LeoFinance Alpha