P2P Loans: You can borrow even without a bank, but you pay higher interest

If you don’t apply for a loan from a bank or other financial institution, you can try an internet auction. P2P loan portals act as such internet dating sites for creditors and debtors. The borrower actually puts his loan into an “online auction” and waits for the lender to offer him less interest. Although the bank does not negotiate the loan, you will not be able to avoid the fees. 

The P2P loan is to find the debtor of the creditor and the creditor of the debtor via the internet portal, replacing the bank that negotiates the process without acquainting the parties with each other.

The Bank’s role in the internet loan auction is partly played by users of the P2P Loan portal because they themselves offer and seek advantageous loans, partly by the site administrator, because they charge a significant fee for using their sites to match debtors and creditors. In addition, the interest rate on P2P loans is significantly higher than that of banking institutions. Hence, applicants for credit resort to P2P loans as a last resort when no one else lends them money elsewhere.

How does direct lending through P2P loans actually work?

How does direct lending through P2P loans actually work?

Naming a P2P loan is an acronym for peer-to-peer, or lending between equals or also from people to people. Loan servers run online loan auctions where the borrower asks how much he needs to borrow, how long he wants to repay, and the maximum interest he is willing to pay. The system also sets the minimum interest for it. Expect interest rates in the order of tens of percent. For example, in the oldest Czech Web site on P2P loans, the average interest rate on negotiated loans reaches a staggering 39% .

Investors in the position of lenders are looking for where to profitably appreciate their free funds, and if an offer attracts them, they “pull” the offered debt by providing lower interest. Several different creditors can borrow a total amount to one debtor. This situation even happens quite often because lenders lend money virtually at their own risk and prefer to send the borrower a smaller amount than to risk a big loss.

P2P loans or social loans in short

  • Debt receives a rating from the administrators (risk assessment) based on the information that the loan applicant has completed about himself
  • According to the entered data from the debtor, the system determines the minimum possible interest rate
  • The borrower usually borrows money from more creditors
  • Interest is higher than for banks due to higher risk of borrowers
  • The administration of the loan through the portal is subject to a fee (certain% of the loaned amount)
  • Some portals (such as Finx) exclude loans from the most risky clients

P2P loans offer creditors the benefits at a great risk

P2P loans offer creditors the benefits at a great risk

Investors expect a higher appreciation from loan auctions than they would receive when depositing money on term or savings accounts in banks. At the same time, they do not have enough money to afford to invest directly in stocks.

Borrowers will not find favorable interest at the loan auction

Borrowers will not find favorable interest at the loan auction

Loans are mostly looking for a last chance to borrow some money because they have already refused it in banks or credit companies. They may have a bad credit history, that is, a black dot in the debtors’ registers, or a small income and at the same time other loans. Therefore, it is a risk borrowers, which must be counted mainly creditors.

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The P2P loan administrator earns the same money as a bank

The P2P loan administrator earns the same money as a bank

Statistics from Bankil

  • Average loan amount: CZK 10,000
  • Average repayment period: 3 years
  • Average interest rate: 39%
  • Since 2010, 13 thousand loans have been negotiated

In the Czech Republic, online loan auction sites have started to appear since 2010. Bankil was the first swallow. The portal is not a bank, so you can say goodbye to bank charges. However, Bankil also charges a commission for an agreed loan using the site as a loan marketplace.

The lender will pay 1% of the amount currently due for the year. The borrower pays 5% of the borrowed amount, but at least it must be at least CZK 900. If you delay with payment, each reminder will cost you 300 CZK. In addition, if the debtor wants to repay his debt prematurely, he will be charged an 18% fee on the outstanding amount.

What happens when a debtor stops paying his debt?

What happens when a debtor stops paying his debt?

P2P loan administrators practically carry no risk. Under the terms and conditions of Bankil, we read that: “The Administrator does not assume any risks associated with the provision of a loan, respectively. Of course, by concluding this agreement, it does not guarantee a return on funds. ” Of course, for late payments, interest is charged on half of the injured creditor and the other half on Bankil. However, when a debtor does not pay, Bankil’s staff begin to urge him and, after 30 days, hand over the case to a recovery firm. Any judicial or execution proceedings accelerate the fact that the loans are secured by a bills of exchange. Despite this, for some P2P loan servers, every fourth borrower becomes a defaulter.

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