How do DeFi loans work?

Decentralized finance (DeFi) presents a lending process that bypasses traditional banks and intermediaries. Instead, loans are made directly between peers. DeFi offers borrowers and lenders the chance to find a platform, strike a deal and set up a smart contract; and voilà, the loan is set up.

A major advantage lies in the fact that borrowers don’t have to sell their cryptocurrencies to obtain liquidity.

For example, if you own a house that you want to keep while you buy a new one, you could use your old car as collateral to get a loan in DeFi to buy the new one.

Similarly, with DeFi loans, you keep your cryptocurrencies while benefiting from more advantageous terms than traditional loans.

This approach eliminates barriers, speeding up transactions while providing returns on deposited funds.

source : Ledger