The annual percentage rate is the amount of interest a borrower has to pay each year until a loan is settled.
The Long Explanation
Every lender – from traditional lenders to crypto lenders – provide borrowers with the rates at which they can access provided loans. These rates include the interest rates charged on the loan, as well as any other fees the borrower must pay.
The interest rate is the percentage of interest the borrower is charged over the duration of the loan. What the actual percentage will be varies by platform, digital currency and loan type.
For instance, a platform may charge a 4% annual interest for a crypto loan. So, if you collect a loan of $1,000 to be paid back over a year, your interest rate will be $3.33/month and a total of $40 over the 12-month period.
Some platforms may also charge fixed fees for borrowing from their platform. For instance, borrowers on a certain platform are charged a 2% “origination fee” in addition to any interest rates.
Most crypto exchanges take advantage of the large volumes of crypto tokens on their platform to provide loans to borrowers. They encourage users to lend out their coins, offering them profits at the same rate of interest charged to borrowers.
Potential lenders on these platforms are offered a variety of ways via which they can provide loans and earn from them. This is often done via staking during which your tokens are locked away until your designated lending period is up.
Lending options may be fixed or flexible. Whereas fixed lending plans require you to stake your coins for a defined length of time, flexible lending plans can be stopped at any time. As a result, fixed lending options generally offer higher rates of interest.
Note: The cryptocurrency market is an extremely volatile market. Some platforms offer high rates of interest, which is reduced as more lenders make their tokens available. Likewise, the value of a coin may increase or decrease during your staking period.
Be sure to do your research before staking any coin or token. It is strongly recommended that you only stake currencies you wish to hold for the long term.