Payday Loans from private individuals – you should pay attention.
An increasing number of credit seekers are looking for alternatives to ordinary bank loans. Not infrequently, the dissatisfaction with the house bank or basically the view that there must be cheaper or better financing options outside of banks, the reason for this.
In this case, in particular loans from private individuals are eligible, which can be organized either on credit marketplaces or completely private way. We would like to inform you in the following guide on the topic of private individuals’ credit and what you should consider and know about such financing.
What is a payday loan from private individuals?
More and more loans are being lent outside the banking sector these days. As general term for this financing variant the term credit of private individuals has become naturalized. Alternatively, the providers use other names, such as:
- Credit from private
- Personal loans
- personal loan
- Loan of private financiers
Whenever the word “private” appears in the denomination, you can assume that the lender is not a bank but a private individual. Incidentally, the term crowdfunding often also applies in this context. By this is meant that a group of lenders, usually also private individuals, provide capital to individuals seeking credit via certain platforms. One speaks in this connection also of a mass..
What types of personal loans are there?
In principle, there are two types of personal loans that differ only in terms of the organization of the lending and settlement. On the one hand, this is the personal loan, which is sometimes referred to as a relative loan or family loan. In this case, it is a personal relationship between the loan seeker and the lender. The lender in this case is usually a family member, a more distant relative or a friend or friend. These loans from private individuals are privately organized on a full scale so that neither a bank nor any other commercial provider is involved.
The second variant are so-called credit marketplaces, which include auxmoney among others. Private individuals have registered there in order to obtain a loan for financing needs, but also to act as lender. In this case, the loans are also provided by private individuals, except that the entire settlement and prior credit check is organized by the respective credit platform. We would like to inform you in the following about both variants of the loans of private individuals, so that you can gain a good overview of the advantages and disadvantages of the respective financing form.
Personal loans in the form of family or relative loans
Most people do not remember it or do not know that the original first type of financing was a loan made between private individuals. As late as the 19th century, it was a matter of course that, for example, wealthy people from one city lent money to other residents. It was quite common for relatives to provide capital among themselves. After the banks gained more and more influence and organized the entire money traffic, the personal credit had long taken a back seat. For around ten years now, however, it has become the case that loan seekers increasingly opt for this financing option. One possibility is then, for example, parents, grandparents, other relatives or very good friends to ask for money. In this case, it is a pure personal loan, because both lenders and borrowers are private individuals.
Such relatives have some advantages, especially in direct comparison with bank loans. These benefits may include:
- Low-interest or even interest-free loan
- Very individual repayment agreements
- No time pressure
- No collateral
- Often no direct consequence of non-payment of the installment
Many of these benefits speak for a family loan as a personal loan. So it is often the case with relatives that the money is lent without interest payment. In addition, the duration and the amount of the installment can usually be arranged very flexibly and there is usually no time pressure on the part of the lender, but the terms are even extremely long compared to bank data, if the borrower so desires. In addition, relatives or good friends will not be able to make it so fast that there will be a direct consequence if the borrower can not pay one or more installments. On the other hand, it would be very quick for the bank to foreclose the financed property or to take other measures to recover the outstanding debt.
In addition to these advantages of the family or relative loan, there are also disadvantages that you should consider in connection with such a loan from private individuals. The disadvantages include in particular:
- Moral commitment to repayment
- Dispute with payment problems
- Sometimes not legally secure loan agreements
The main disadvantage of a relative loan as a personal loan is certainly that – especially in problems with the repayment – often the saying “in money listens to the friendship” applies. If the borrower is unable to pay the agreed installments, it can quickly lead to family disputes or fierce clashes. The moral obligation to repay the loan is then often more significant than if the bank, as a lender, took steps to recover the debt. In this respect, one should consider very well whether one would like to endanger a previously good relationship with the family or the relatives and close friends by borrowing money and perhaps this can not repay due to their own financial problems.
Personal loan organized via credit marketplaces
On the one hand, if we do not want to use bank credit, but on the other hand do not want to take the risk of burdening family relationships, we have a kind of middle ground, namely private credit. This term is used in particular by credit marketplaces, which include auxmoney. Loan seekers and lenders, each dealing with private individuals, meet here. Thus, there is no family or friendly connection between the two parties involved, but the platform ensures that credit seekers and lenders can meet on an objective and neutral level. A common mistake in this context is that the particular credit marketplace is the lender. This is not so, because lenders are actually the registered individuals who want to lend their money or invest in projects. The credit marketplace itself has only the task of organizing the entire processing of the lending and to check the creditworthiness of the loan seeker first.
This test makes it quite important that the most credit marketplace go so that they divide the respective loan seekers into different credit ratings based on the outcome. This allows a potential lender to assess relatively well the risk that the agreed loan installments will not be properly paid. In particular, people with a very good credit rating can often receive such loans from private individuals at a lower interest rate than would be the case with banks. On the other hand, however, there is often also the possibility via private loans that persons with a negative Schufa entry can use this financing option. The preconditions for the borrower are not quite as strict as is the case with German banks. Thus, private loans are more often a focal point for people with a poorer or medium credit rating, but this does not necessarily have to be the case.
What speaks for and what speaks against personal loans?
In the direct comparison between loans granted by private individuals and the usual bank loan there are both pros and cons to consider. Personal loans are generally considered more flexible, especially when it comes to agreeing terms and monthly installments. This applies both to pure personal loans between family members or good friends and to private loans organized through credit marketplaces. In addition, credit seekers with poor credit ratings often have the opportunity to receive money through this form of financing. Against personal loans speaks at least in the area of relative loans often the risk that it could come in financial difficulties to family disputes. In addition, there is of course no advice on personal loans, as it can take place in the banking sector in connection with a loan.
In summary, it is therefore difficult to give a final verdict on whether personal loans or classic bank loans are the better alternative. In principle, each loan seeker must check in each individual case, which financing option makes more sense for him. With our guide you certainly have the opportunity to decide now, on a good basis, whether you would like to carry out the next financing through a loan from private individuals or opt for the loan of your house bank.