The reasons to look for an alternative to the classic bank loan are manifold. Be it the loss of confidence in the banking system, long-term and bureaucratic processing time and awarding processes, fees incurred, lack of flexibility of the banks, or a questionable credit rating.
Procedure on online platforms
After logging in to the selected platform, a profile with the loan request is created. You indicate the amount you need, the interest rate at which the loan is to be taken up and the planned term. It also makes sense to describe what you need the loan for, so that investors can get a better picture.
The borrower plans himself. The respective portal has certain risk classifications, on which the amount of the interest rate is measured. Higher risk, for example, at low income of the loan seeker, mean higher interest rates. A realistic assessment increases the chances of a private loan considerably.
If the terms and conditions offered by the loan seeker are attractive to investors, they may make an amount available for flexible financing.
Upon repayment of the borrower, investors will then participate in the interest income. Thus, higher-risk credit applications have a chance, as they offer a higher interest rate. The platforms can also be worthwhile for loan seekers who have not been loaned to a bank due to higher default risk.
Repayment and repayment of the loan
With online portals, the financing of credit inquiries usually takes place within a few hours. If enough investors are found, the contract documents, in which the loan amount, interest rate, installment amount and term are fixed, can be signed. Subsequently, the loan amount is paid to the customer , who then repays it in fixed monthly installments.
In the case of the Family and Friends model as well, the payment is usually made after the contract has been signed. When repaying you are not bound to regular installments in the same amount but can vary as desired.
The requirements loan without bank
Private credit is also checked to meet some of the requirements to avoid credit losses as much as possible. Finally, the portals still need investors, who in turn expect certain collateral. Therefore, there should be a steady income, basic credit rating and no hard negative traits in the Schufa.
Regular income is a prerequisite for obtaining a loan online. Whether the income results from a self-employment that has just been founded, for example, or whether a contract of employment is temporary or permanent is not relevant. Even less creditworthy customers have a good chance of lending.
The credit platforms thus carry out a so-called scoring to protect investors for credit check. In doing so, a so-called credit score is determined on the basis of liabilities, income, place of residence, collateral, occupation etc. This score determines whether and on what terms a loan is granted. The higher the score, the lower the default risk, the better the terms of the loan.
Possible disadvantages and dangers
- Lack of consumer protection
Private lenders are not subject to consumer protection laws. Also, there is no regular procedure to be able to defend against arbitrary terminations of the lender. The lender can reclaim his loan at any time.
This can happen with the family and friends model because of personal disagreements or disputes. A danger that is not exposed to bank credit and the marketplace model. Also, the recovery of the loan can quickly become a lever.
- Unfavorable interest
Whether loans from relatives or acquaintances or on-line loan platforms for personal loans, there is a risk that the one who wants to borrow money pays too high interest. Since only in rare cases, a private individual can correctly assess their own credit-based interest rates and supply and demand, it can lead to a miscalculation to an agreement or the specification of an excessive interest. So you pay in the end possibly more interest than a bank loan.
It can also happen that the loan seeker pays excessive interest so that he even gets a loan. A credit from private individuals is not always cheap. With a good Schufa and corresponding incomes are usually offered at a bank good interest rates. P2P loans are usually requested from people who do not receive from the bank.
- Additional fees
When comparing the loan conditions of platforms with those of banks, the fees often incurred by online portals are not considered. Thus, inter alia prepayment penalties for credit triggers or additional handling fees as well as costs for any chargebacks, reminders, etc. may vary. It is also worth comparing with different providers.
- The choice of the wrong portal
Not only in terms of costs, a portal comparison is worthwhile. Especially in the P2B area, there may also be interest-free support for startups on various crowdfunding portals. Likewise in the financing of social projects.
Bad credit rating
In the Family and Friends model credit checks and scoring are in the background. Here, if the credit rating is known, interest-free social lending is most likely to be used to support a friend or relative with a low credit rating.
The situation is different with online platforms. If no income or substitute collateral is available, a loan is almost impossible . On the other hand, borrowing at a low Schufa score is possible, but then affects the interest rate on the loan. In the case of hard negative features in the Schufa, ie insolvency, affidavit or arrest warrant, no loan is granted, since in these cases the person seeking credit already indicated that he was insolvent.
Guarantors are usually not accepted.
However, low credit levels and earmarked loans may lead to softened credit conditions. For example, when buying a car, the vehicle can be used as collateral, which increases the credit rating.
Current figures and development (Germany)
In 2016, the transaction volume of P2P money transfers amounts to approximately EUR 2,132.4 million, with an upward trend. A transaction volume of EUR 5,486.1 million is forecast in 2020. The current number of users is expected to increase from 12.2 million to 13.8 million users. These are mostly small loans that are not awarded by banks.
The trend towards coedlending portals is therefore increasing, and represents an alternative to bank credit for more and more people.