Pros and Cons of CeFi Crypto Loans

 

CeFi (centralized finance) crypto loans are a popular and well-known alternative to traditional fiat loans. They give people a powerful alternative to standard loans issued by banks or governments, and have been an instrumental part of the crypto world for some years now. They are also a more regulated and robust alternative to DeFi (decentralized finance) loans. Here are some of the pros and cons with this financial tool.

 

Pro: Customer Service

 

For starters, CeFi loans have more customer service than their DeFi counterparts. CeFi loans have a great deal of human intervention and activity at every step, unlike DeFi which is practically all automated. Many people prefer the human touch when it comes to finance as money is such an important part of current-day living, so the idea of a loan service running fully on smart contracts can be off-putting. CeFi loan providers not only have ample customer service, but they are regularly monitored by staff members, so if anything goes awry it gets picked up quickly.

 

Pro: More Freedom than Traditional loans

 

CeFi loans offer more freedom than traditional loans do, as CeFi loan providers do not require invasive and demeaning credit checks. They do not monitor your finances either. This is one of the biggest problems with traditional financial services; they interfere too much into people’s lives. Crypto loans stay away from this as it is both unethical, and logistically impossible for most providers. Additionally, because of this, it means that more people can take part in crypto loans as even people who have bad credit scores or people who are unbanked are still capable of borrowing.

 

Pro: More variety with collateral

 

CeFi crypto loans offer more borrowing and lending options than either traditional loans, or even DeFi loans. Traditional loans usually only let you use fiat or well-regarded valuables like real estate or precious metals as collateral, and DeFi providers usually only allow Ethereum ERC-20 tokens. But CeFi crypto loan providers allow for Ethereum-based tokens, as well as other popular coins that lay outside of the Ethereum ecosystem, such as Bitcoin, Litecoin, and XRP. This gives crypto users significantly more options when it comes to how they secure their loan, giving more peace of mind.

 

Con: CeFi loans are often overcollateralized

 

Practically all CeFi loans are overcollateralized, meaning that people have to deposit significantly more money than they can borrow. This can sometimes be 50-80% more. DeFi loans are usually overcollateralized, too, but there are some alternatives such as Flash Loans which are not collateralized at all. Plus undercollateralized DeFi loans are becoming more prevalent.

 

Con: CeFi loans usually require a bank account

 

DeFi loans will issue your money via a smart contract directly towards your crypto wallet. However, CeFi loans usually issue your money directly to a bank account. This is a great thing for many people as it means that fiat cash is seen in their account more-or-less instantly, but for some people this can be problematic. This requirement to have a bank account can prevent some people who are unbanked from taking part in CeFi loans. However, this is not exactly a negative, but more so a preference, as money directly entering a bank account is a huge plus for a lot of people.