One of the key distinctions between the SALT Platform and other lending platforms is our exclusive focus on collateralized loans over anything to do with credit scores. This blog will examine the difference between the two.

When people need to take out a loan, they generally have three options or some combination thereof, this include a credit-score based unsecured loan, a guaranteed loan, or a collateralized loan. These are often used for short-term loans which can be to cover holidays, school tuition fees, a new car or boat, or day-to-day cashflow, while larger or longer duration loans for capital purchases or a mortgage will require either collateral and/or a guarantee from a third party.

When applying for credit-score based loans, there are a number of steps involved. Firstly you need to identify a lender who will provide a loan of the amount, and repayment terms you want and can afford, after which you will need to put in an application. Once this application is being processed, it will then go through a number of credit scoring checks, to identify your past history of repayments, and this score directly relates to the interest rate you will receive.

If you have good credit history, this can proceed smoothly, but if you have a spotty or poor credit record, this can lead to underwriting rejecting the loan outright, or offering a loan with penal interest rates or other terms. Also as credit scoring history is shared between people in the industry, including requests by different companies to look at your score, a rejection can compound itself and lead to subsequent applications for finance being impacted. As we have seen with the recent breach with Equifax, this highly valuable information also needs to be secured so it doesn’t fall into the hands of those who shouldn’t have access to very private financial information.

Other lenders require a guarantee to support your loan application, for instance if you are 18 and want to get a second-hand car, and have no prior lending history or credit score, a parent may be asked to guarantee the loan repayments. This gives the lender an assurance that if the person taking the loan out is unable to make payments, a third party will step in to keep up the loan repayments. This can help some people who have access to a third party to help overcome the hurdle, while it can limit the options to those who don’t.

The third option, and the approach that the SALT Lending platform is taking is a purely collateralized loan. Traditionally, say for instance in a home mortgage or the purchase of a new car, the asset itself is put up as collateral, or alternative existing securities which an applicant has in their portfolio. However, as these tangible items aren’t exactly liquid or divisible, in the event of a default, the entire loan and the asset underlying it can be foreclosed, even if a large portion of the loan has been repayed.

Where SALT differ is by using blockchain assets as collateral. As these are divisible (usually to 8 decimal places), as well as liquid, in the event of a missed payment, a portion of the asset can be sold off to bring the loan performance back into line with the terms of the loan. For example, if someone is taking out a $10,000 loan, pays back half of the loan, and then runs into cashflow problems for a month, a portion of the collateral will be liquidated. This isn’t possible with traditional assets as you can’t exactly sell off one room in your house, the steering wheel of your car, or part of a share.

SALT Lending’s focus on collateral also means that we don’t need to worry about credit scores at all, as long as the applicant has registered with our platform, purchased a relevant membership subscription with their SALT tokens, completed AML/KYC and posted collateral, we can offer flexible and competitive loans to digital asset holders.

We will be releasing further information here on Medium over the coming weeks, but if you want to stay up to date with all things SALT, we’re providing a variety of ways in which you can contact the SALT Team and you can follow @SaltLending, like Salt Lending on Facebook, or see our videos on our YouTube channel.