The term “personal loan” is often used misleadingly. Banks and savings banks speak of a personal loan if the bank grants a classic installment loan to a private individual. “Private” defines the intended use or the target group. In contrast, the personal loan in connection with online credit marketplaces is an installment loan that is granted by a private individual. Operatively, this type of money lending is also processed through a bank, but the capital does not come from the bank, but from a private investor. Borrowers are both commercial and private customers. Depending on the platform and orientation – whether it is a pure credit marketplace or a crowdfunding portal – in the area of commercial customers, the self-employed, freelancers, small and medium-sized companies can be served. In addition, private loans that are aimed at very specific target groups. In this way, owners of an unencumbered property can borrow higher amounts of credit from private investors against collateral security.
Borrow money from private
Anyone who needs capital quickly and cannot or does not want to apply for a loan from the bank will find a welcome alternative to bank credit in a private loan. This can even be significantly more advantageous for the borrower – not only in terms of the particularly unbureaucratic process. Peer-to-peer borrowers primarily appreciate the quick availability of the money they need. While the branch bank’s credit decision often takes several weeks, the customer of the online credit exchange knows after only a few days whether his loan project is being financed. If the borrower has a correspondingly good credit rating, financing is even possible within three days.
Customers appreciate the transparency of personal loans and the ability to exert influence themselves. Borrowers can present their project they want to finance on the marketplace and convince private investors of their project with a skilful presentation. If an investor is interested in investing in a project, but still has questions, there is the possibility to get in direct contact with one another (anonymously) and to exchange ideas on an equal footing. Borrowers can choose what interest rate they are willing to pay. If the borrower does not find enough investors within the deadline, he can gradually increase the interest rate until the project is fully funded. This mechanism gives the borrower more freedom of choice and control. Another plus point are the flexible repayment modalities.
Who gets a personal loan?
Just as with a bank loan, a credit check is also carried out for private loans. Although the criteria for online credit marketplaces are not quite as strict as for banks, not every borrower is admitted to the marketplace. Borrowers with a negative Credit Bureau, for example, are not given the opportunity to post their loan project on the marketplace. This is also necessary in order to keep the credit default risk as low as possible and thus protect private investors from losses or loss of yield.
Anyone who has to borrow 1,000 dollars quickly for a new purchase or for the overdraft facility is not exactly welcome at the bank. Banks earn almost nothing from mini-loans in the amount of a few hundred or thousands of dollars – on the contrary: if you compare the bureaucratic and organizational effort with the return, small loans are even a loss-making business for banks Borrow amounts of money.
Certain customer groups, which are almost always rejected by banks, such as the self-employed and freelancers, have significantly better chances in online credit marketplaces and can borrow money without great hurdles. Banks rate the risk among self-employed people as too high due to strongly fluctuating income – and often wrongly and not understandable for those affected. Because well-running business and a good Credit Bureau score are often not enough for banks. Many investors who are active in online credit marketplaces have started out small and are familiar with the problems and difficulties that self-employed people have to deal with at banks.
This is exactly why investors want to support this professional group and invest in commercial loan projects. Last but not least, the certainty of helping like-minded people and doing something good is increasingly motivating private investors to lend their capital to the self-employed and small entrepreneurs. Due to the rapidly growing business volume, the loan for the self-employed for crowdlending portals has meanwhile established itself from a niche to an important branch of business.