Start-ups, the upcoming move, a debt rescheduling – these projects by private individuals and many more require financial resources that are often not available ad hoc. Banks and credit institutions traditionally offer their services by offering a range of financing products. When applying for a loan, the applicant is initially faced with the problem of having to qualify for a loan.

Requirements for granting loan

Requirements for granting loan

Collateral such as regular salary payments in an amount of income that make it possible to attach in the event of arrears are one of the basic requirements for the granting of a loan, which is usually due in fixed monthly installments. German credit institutions and banks also obtain Credit Bueau information prior to granting the loan. If the determined “Credit Bueau Score” value is low, the applicant is threatened with a negative decision. Negative notices are common, the number of loans provided by banks has been declining for years.

At the same time, with the help of the world-wide-Web (www) new “credit worlds” are developing, which, to the chagrin of the established banking industry, do without their intervention under the umbrella term “credit from person to person”, with the help of an Anglicism also “Social Lending Platform” called establish. Essentially, these are credit exchanges for the granting of direct loans that have structures similar to those of an auction platform.

On the one hand there are lenders, people with available private money and the willingness to lend it to other people. These are countered by people with credit needs, which they articulate to the lenders and of course also justify. A sort of “bank” of the operator of the server platform becomes active.

How person to person loan works?

How person to person loan works?

The loan from person to person hits a gap in the market, the functional mechanisms of which are made transparent using a constructed example. We are looking for a new, suitable tenant for a petrol station with an attractive catchment area and excellent traffic conditions. A transfer of the lease contract can take place for a payment of 20,000 USD. This offer appeals to a young family man with a mechatronic craft profession. His handicap consists of a relatively low income, very little savings and from the banking point of view hardly any sufficient collateral.

The loan from person to person nevertheless opens up opportunities for the young family on the way to independence. The loan application is made online via one of the platforms available on the Internet. The applicant justifies his credit request by introducing himself and his circumstances, describing the investment project and substantiating both his qualifications and the entrepreneurial opportunities of the investment. Inclined investors among the platform participants will also check the request submitted to Credit Bueau.

If sufficient financiers are found – tranches starting at a deposit of 50 USD are possible on most platforms – an interest rate for the total loan and a total term are determined and the loan, which is fed from several sources, is summarized by the “bank” of the platform and made available to the borrower.

As with a bank loan, fees are also payable on a person-to-person loan. These apply to the activation of a loan application. The server operator also charges processing fees and charges the costs of the credit check. Depending on the platform, fees are payable for both the lender and the borrower when a loan transaction is concluded. The default risk lies with the lender, who is recommended to only invest if the borrower’s creditworthiness is proven.

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