Unless you happen to be purchasing cars with cash, chances are you’ve taken out an auto loan at some point. You’ve probably shopped around for the best interest rate available and spent a significant amount of time haggling to get the best possible price on that new car.
Regardless of whether you could get the lowest rate possible, it invariably comes as a shock when it’s time to sign the papers, and you find yourself face-to-face with the actual cost of that new car.
And, if you’re anything like us, you may feel more than a little bothered by the idea of centralized legacy banks making a killing off of your loan.
But did you know there’s a way to shift the rules of the game and change the status quo of auto lending? This shift can not only make securing an auto loan more convenient and transparent, but it can also earn you passive income in the process.
It’s called DeFi Auto Lending, and in this article, we’ll break down the basics of how investing in DeFi lending pools can make your crypto work for you.
What is Decentralized Finance Lending?
Decentralized finance (DeFi) is a broader term used to describe financial services based on blockchain technology. DeFi tools and services (like everything having to do with the blockchain) operate in a decentralized manner.
Decentralized finance lending, or DeFi lending as it’s called, shifts the control of loan-related risks and assets from third parties like banks, dealers, and brokers onto cryptocurrency holders themselves. With decentralized finance loans, anyone can either take out a loan or earn interest on a loan by lending their own funds, regardless of their financial background and even independent of their credit history.
Like CarrDefi in the automotive space, decentralized lending platforms provide loans to members without the involvement of third-party intermediaries like banks. In addition to being a convenient way to purchase a car using crypto, DeFi platforms like CarrDefi can also function as an investment opportunity, allowing investors to contribute to loan pools and pocket the interest that would otherwise go to the bank.
DeFi lending as both a means for securing a loan as well as a way to earn a passive income has become more and more popular in recent months.
According to DeFi pulse, there are just under $25 billion currently invested in DeFi smart contracts. That’s up from just under $1 billion only a year ago.
What are the Benefits of DeFi Lending?
As a peer-to-peer lending method, DeFi lending has numerous benefits for both borrowers and investors. It breaks down many of the barriers imposed by traditional financial systems and contributes to financial inclusion regardless of status, education, wealth, credit, or other potentially limiting factors.
One of the most appealing benefits in the automotive space, in particular, is that DeFi lending allows users to avoid traditional banks and lenders to secure a loan. Most of us have experienced it. The process of obtaining a traditional auto loan can often be murky and confusing at best. Rates vary widely from bank to bank, seemingly without rhyme or reason, and many applicants are excluded from securing a loan outright. Decentralized auto loans offer a much more transparent process where every participant benefits.
Flexibility is another key benefit of decentralized lending. In the case of CarrDefi, the first-ever tiered, decentralized auto lending platform, borrowers can choose whether to apply for a credit-based or asset-backed loan. As borrowers build a history of loan payments, they will be able to move into higher tiers, lowering their interest rate.
For investors, DeFi lending provides a way to make crypto assets work for them by generating passive income. It serves as a tool for preserving wealth and for avoiding traditionally centralized capital controls.
Earning a Passive Income Through DeFi Lending Doesn’t Have to be Complicated
As groundbreaking as DeFi lending is, the idea behind earning passive income this way is surprisingly straightforward. Investors simply add their crypto assets to their chosen lending pool, also called a liquidity pool.
Once the pool is funded, participants will begin to receive their portion of the loan plus interest as soon as borrowers begin to make their regular payments. This process continues until loan repayment is complete.
DeFi is certainly innovative. But like anything that is new and disruptive, there are a few things to consider before diving in headfirst.
Some DeFi Endeavors are Riskier than Others
Earning passive income from DeFi lending is not complicated. But like any type of investment, it’s not without its inherent risks.
There are many ways to participate in decentralized finance. This can include riskier endeavors such as Yield Farming or Liquidity Mining. Yield Farming is one of the riskiest DeFi investments available today. It involves users providing liquidity to a project by lending their own crypto in exchange for interest.
Staking is similar to Yield Farming with the exception that investors also receive a governance token, giving them some say in the future of the program via voting rights.
While these sound simple enough and these types of DeFi investments can often yield high returns, they are inherently volatile and prone to issues ranging from code vulnerabilities to problems with centralized services for things like pricing information.
Asset-Backed DeFi Lending Offers a Hands-Off Way to Earn a Passive Income from Cryptocurrency
If you’re looking for a truly passive income without the need to micromanage a portfolio, a lower-risk lending pool might be right for you. Your returns might not be as significant as funding higher-risk projects, but your otherwise idle coins will be working for you – and most importantly, earning for you – in a truly hands-off fashion.
In the case of CarrDefi, loan pools are compiled to maximize returns and minimize risks by leveraging over 50 years of financing experience.
Regardless of what type of investment into DeFi lending you’re considering making, whether in auto lending or elsewhere, you’ll need to assess your own level of comfort with risk.
How Much Can You Expect to Earn with DeFi?
There are ways to boost your earning potential, though. Some loan pools offer increased returns depending on the coin you choose to fund it with. With CarrDefi, for example, you can fund auto loan pools with Bitcoin (BTC), Ether (ETH), XRP, or CARR, the ERC-20 token minted by Carnomaly.io you’ll see an even higher annual percentage yield (APY) that is higher than the default rate:
For prime pools (loans for credit scores from 650 and up), you can expect rates up to 7.9% APY, but with CARR, you’ll see rates up to 8.5%.
For mid-prime Pools (loans for credit scores ranging from 550-649), you’ll see up to 12.9% APY with other coins and up to 13.5% with CARR.
Likewise, for sub-prime pools (loans with credit scores ranging from 0-549), APY can reach up to 16.9% with BTC, ETH, or XRP and up to 17.5% with CARR.
Earning passive income on automotive loans through CarrDefi is a great first step into the world of decentralized finance. CarrDefi guarantees income on the lender’s crypto assets, and digital finance experts help to prevent coin-value-fluctuation-based value loss through continual reviews. In addition, funding pools are asset-backed, with the car itself acting as collateral. In case of a defaulted loan, Carnomaly handles the collections process, as well as repossession and auction of the vehicle.
DeFi Lending: How Will You Make Your Crypto Work for You?
There’s no doubt; it’s an exciting time for the world of decentralized finance. DeFi lending promises to be one of the most promising applications of blockchain technology, and its contribution to equitable, inclusive financing will have far-reaching effects.
With its rapid rise in popularity, DeFi applications have moved us as a society closer to a fully-fledged decentralized financial system. A financial system that isn’t controlled by banks or any single entity.
If you have idle cryptocurrency simply sitting around, why not put it to work for you? You’ll earn a passive income in the process, all while widening the lending opportunities to those who may have been left out of the traditional, centralized financial system.