DeFi lending is changing the lending game in 2021. For the automotive sector, CarrDeFi is creating a true peer-to-peer DeFi lending process to connect prospective borrowers with individuals looking to earn interest on idle crypto.
All it takes to get started is understanding the difference in risks and rewards that come with each of CarrDeFi’s unique lending pools. So today, we’re taking a closer look at the growth of blockchain interest, the role it will play in the automotive industry, and how borrowers and lenders alike can take the power back from big banks with this new type of auto loan.
Cross-sector Blockchain Interest is Booming
The blockchain industry is not living in isolation anymore. From a global market size of $3.0 billion in 2020 to a projected $39.7 billion by 2025, the growth in the industry translates to a phenomenal compound annual growth rate (CAGR) of 67.3%.
An industry cannot attain such a high growth percentage unless it becomes cross-functional, augmenting its position in other domains. Therefore, industries of diverse types are keen to leverage blockchain to their advantage. A study by Gartner shows that blockchain’s business value-add will grow to a massive size of US $176 billion by 2025.
The intersection between blockchain and the automotive sector is proving to be one example of a cross-domain success story. According to a study report published by Deloitte, executives working in the consumer products and manufacturing industries, which includes the automotive sector as a subset, have a highly bullish attitude towards blockchain. A couple of years back, even before the explosive surge in the use of digital assets started taking place, 42 percent of these executives were planning a US $5 million minimum investment in blockchain technology.
Carnomaly: Making Blockchain Useful for Car Owners
The vision of Carnomaly is to make blockchain and cryptocurrencies approachable and valuable for car owners. It has three products that address three different blocks of the automotive purchase value chain.
- CarrChain, a digital car management program that rewards its users. – Carnomaly, which empowers consumers to purchase a vehicle with cryptocurrency while creating a better online buying experience.
- And CarrDeFi, which facilitates peer-to-peer lending through DeFi auto loans. (For the purposes of this blog post, we will delve deeper into CarrDeFi, to understand more about its loan pool structure.)
The global car finance market is a trillion-dollar one with a value of US $1,290.7 billion in 2019. Furthermore, market researchers predict a double-digit growth rate of 14.3% for this market between 2020 and 2027. Following this growth curve, the market, by the end of 2027, will reach a size of more than $2.3 trillion. CarrDeFi attempts to get into this market and make blockchain technology relevant to the process of an automobile purchase.
The question is, how?
To better understand, we would first have to understand how decentralized finance or DeFi auto loans work.
The DeFi Auto-Loan Mechanism
Many experts have termed DeFi auto loans as one of the most practical applications of decentralized finance to date.
DeFi loans, the superset of DeFi auto loans, are already among one of the fastest-growing segments in the world of blockchain, digital assets, and cryptocurrencies.
But, how do DeFi auto loans compare to traditional auto financing? Similar to the core advantage of decentralized finance as an alternative lending paradigm, DeFi auto loans are also free from institutional intrusions and intermediaries. On the other hand, traditional auto-financing, no matter how lucrative the schemes are, suffer from the challenges of personal identity and sensitive data disclosure.
With DeFi auto loans, you, as a borrower, do not need to hand over loads of sensitive personal data to the lender. All you need to have is a crypto wallet and a platform to connect you to the crypto auto lender. This makes it remarkably inclusive and highly accessible for people around the world. It is a profitable enterprise to earn interest by deploying idle assets into good use on the lender’s part.
DeFi auto lending can be diverse in its application. As long as you hold enough crypto assets, you can become a lender, and if you need to borrow, the access is hassle-free and non-prohibitive.
Another technical difference between traditional banking auto loans and the DeFi auto loan is that the DeFi auto loan services, like CarrDeFi, use a lending pool. In contrast, traditional financial institutions have lending offices.
The CarrDeFi Lending Pools
At a big bank, your credit score may often come between your willingness to borrow and your eligibility to borrow. While the traditional auto-finance offices would deny loans to those with poor credit scores, the CarrDeFi loan pool has a provision for all — including the option to stake your crypto assets as collateral and leave your credit score off the table.
Prime Lending Pool
Mid-Prime Lending Pool
Subprime Lending Pool
The sub-prime lending pool is the solution for anyone, even someone who has a credit score of 0. For individuals with credit scores between 0 and 549, you will get loans at an interest of a maximum of 16.9%.
Choosing the Right CarrDeFi Loan Pool as a Lender
From the would-be lender’s perspective, you’ll need to weigh your options carefully. The decision of which lending pool to invest your idle crypto assets in pivots on how much risk you are willing to take for what rewards.
Like all other DeFi lending protocols, you get a chance to put your holdings to profitable use. Being an auto-lender, the assets you lend are asset-backed. Therefore, it is profitable for both the lender and the borrower. While the borrower does not need to over-collateralize the loan, the lenders are safe because, in case of a default, the platform handles the repossession of the vehicle to cover the losses.
Subprime lending pools offer the most significant returns thanks to their higher interest rates and come with increased risk since lower credit scores often indicate a higher default rate.
Even if you choose a less risky lending pool, lenders can choose to fund loans with Carnomaly’s own CARR Tokens, which will earn you a higher return regardless of the pool.
How CarrDeFi Works
First and foremost, applying for a loan is as easy as filling out a short application. The CarrDeFi team goes through the application and matches one demand and eligibility with the correct lending tier.
Locking collateral is hassle-free. You can choose your existing crypto assets as collateral and lock them for periods of four years, five years, or six years.
You even have the choice to decide on the cryptocurrency you want to receive your funds in. You can go with the standard ones, such as Bitcoin and Ethereum. Alternatively, you can choose Carnomaly’s native digital token CARR, which will bring with it the added benefit of a discount should you choose to purchase your new-to-you vehicle on Carnomaly.com.
The processing time is within a month, starting from the time the pool is fully funded.
CarrDeFi is a True Win-Win Solution
While we’ve discussed the benefits CarrDeFi lenders receive, it’s important to note that as a borrower, you also receive all the benefits of DeFi. Most importantly, it’s a lending solution that’s unbiased, inclusive, transparent, and accessible. And, because it’s free from big-bank interventions, it’s also cheaper and more autonomous.
Additionally, both borrowers and lenders can access even more incentives by funding loan pools or purchasing their new vehicles with CARR tokens.
When it comes to choosing your CarrDeFi loan pool, we hope this explanation helps highlight the differences between the pools. For more information, or to ask our team a question, reach out to us here.