Traditionally, if you get a loan or credit then it would be done via a bank or similar institution. They would be in control of the transaction.
With decentralised finance (Defi), there are no banks or institutions involved. Instead, anyone could lend you the money. This is known as Peer-to-peer lending.
Defi has many other uses, but this article is about peer-to-peer lending.
If you want to get a loan, you use a Decentralized App (dApp). Very simply, you enter your requirements, ‘lenders’ will then decide if they want to lend to you.
Even people without a bank account can apply for a loan, this is because the money is held in a crypto wallet.
Another way of understanding Defi peer to peer lending is to think of if as “Crowd lending” or “Social lending”.
As well as being used by individuals, peer-to-peer lending can be used by companies to raise finance.
The amount that someone can borrow is usually determined by how much collateral they can provide.
Disclaimer: The information provided on this page does not constitute investment advice, financial advice, trading advice, or any other sort of advice and it should not be treated as such. This content is the opinion of a third party, and this site does not recommend that any specific cryptocurrency should be bought, sold, or held, or that any crypto investment should be made. The Crypto market is high-risk, with high-risk and unproven projects.
Readers should do their own research and consult a professional financial advisor before making any investment decisions.