Why DeFi is the future of low interest rate consumer loans?

This article was first published on Stories by Nucleus Vision on Medium

For decades, banks have been the most convenient medium for managing money, for both borrowing and depositing. Convenience and customers’ lack of financial sophistication have enabled banks and fintech lenders to take advantage of this to make high net interest margins deposits and loans — without incentivizing the user.

They have always made banking fancier with the evolution of new financial products like personal loans and credit cards. In the recent times credit cards remain the most ubiquitous credit vehicle amongst users while the increase in personal loan originations has been primarily driven by the growth in fintech. The banks and fintech’s have always been in stiff competition with each other in personal loan lending. In order to not lose such a naïve consumer market, they have been leading towards constant partnerships to cater to the rising demands within consumer finance lending.

Bait for Banks

The global average industry lending rates for a personal loan stands at 11.88% otherwise they can range between 6% to 36%. The banking sector is devouring the customers by gaining on high profit margins because the customers are willing to pay such high interest rates as they are left with no other alternatives.

With rising demand for credit from consumers, banks are now linking interest rates to borrowers’ credit behavior and performance. Now, every single financial action of the consumer depends on the credit score and financial history plays an important role in the interest rate that is decided for the loan you wish to borrow. Even if you are millennial with no credit history, loans are easily available instantly to millennial borrowers with the rise in the number of fintech lenders. So, there is easy access to credit for young first-time borrowers.

Banks and fintech lenders have left no stone unturned to tap into new potential borrowers. Let ...

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Stories by Nucleus Vision on Medium

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