A few weeks ago we talked about what were loans between individuals, also known as crowlending or P2P, about what platforms are available in the market today and about the future regulation of these platforms by the Government. Today, we will explain in more detail how these types of platforms work in general and what a person has to do to request a loan from a private individual.
Loans between individuals: What are they?
Loans between individuals are one of the alternatives to traditional financing that we can find today. These loans are mostly offered online platforms . These platforms are presented as intermediaries between lenders and investors . In this way, a person who needs to finance any type of project, goes to one of these platforms to contact private investors who lend their money to develop their project. In return, the borrower must pay an interest (generally lower than the interest rates offered by traditional financial institutions) to the investor who is financing his project. If you want to know more about how to get a loan between individuals or how to invest by lending money , you can sign up for the webinar next Monday , September 15 at 4:00 p.m.: Get a return above 8% with loans between people with Marcel Beyer and Isabel Lagos Diaz. Sign up for the course
How do platforms that offer loans between individuals work?
The one who wishes to obtain financing to develop his project must first of all register on the website of the platform chosen to request the loan and send a loan application together with the plans of your project and the amount of money you need and the time in which you would like to return it (duration of the loan. The platform will submit your loan proposal for examination, once it has received the necessary documentation – payroll, account movement or income statement among others) to evaluate your ability to pay to decide whether or not to approve your loan, taking into account the borrower’s default risk , the profitability associated with that risk and the repayment term, among other things. If your proposal is approved , the platform will publish your project on its website for a period of time for investors to invest.
Individuals who wish to invest in a project also have to register on the platform’s website. Once registered, they will be able to access information about the loans available at that time on the platform. That information includes the purpose of the loan, the term to return the money or the borrower’s employment relationship. The investor is free to finance , in whole or in part, the loans that he thinks will provide a greater return by contributing the amount of money he deems appropriate in each case: $ 25, $ 50, $ 100, $ 200 … however, he always insists in which the key to the success of the use of these platforms is in the diversification in multiple loans.
The investor will receive the money borrowed each month along with the interest. For example, Best lender Company calculates the interest rate depending on the level of creditworthiness of the borrower, the amount of money requested and repayment terms . This platform classifies loans into five solvency levels. The loans with lower risk of default are assigned letter A, while those with higher risk are assigned letter E. And as in any other investment, the higher the risk, the higher the interest rate.
Loan platforms between individuals act as a point of union between borrowers and investors . In return, the platform will charge a commission for managing operations. For example, Best lender Company charges a commission of 1% of each payment received by the investor that is automatically deducted before the payment is transferred to your account. The commission that Best lender Company charges borrowers is between 0.75% and 4.5%.
This percentage will depend on the amount of the loan and the level of risk and will be automatically deducted from the money of the investors that the platform sends to the borrower. This type of financing has generated many doubts about the management of defaults and investors invest in unsecured loans. There are also many doubts about what would happen to the money invested if a platform closes or goes bankrupt and how the returns derived from these investments are taxed . To try to clarify these doubts we will give an example of how one of the crowlending companies manages these aspects.
What happens in case of delay or default?
In the case of late payment or non – payment of fees, the platform is responsible for managing its accounts receivable. If after 90 days the borrower does not pay his payments, the loan is sold to an external collection agency.
What happens if the platform closes or goes bankrupt?
In the event that the platform closed or broke , the funds found in the investor’s account would remain the property of the investor . As for the money that is invested in the loans, the contract between the borrower and the investor would remain valid . The borrower maintains the obligation to pay the fee with their respective interests to the investor and, in case of default, the investor could directly claim the money from the borrower, although in this step the figure of a bankruptcy administrator would enter.
How do you pay these returns?
The returns derived from operations are taxed as movable capital returns.
According to Infocrowdsourcing, of the more than 300 online platforms that exist in the world, 47 of them operate in Spain. In Spain the best known are: Comunitae, Best lender Company and Lite Lender Company. In the United Kingdom, the leading platform is Zopa and in the United States Lending Club. For those who are interested in investing in loans between individuals, we inform you that, as a user of Rankia, you can enjoy a Best lender Company promotion with which you can have a $ 50 gift for investing in one of the platform loans.