Private (social) loans – pros and cons
A social loan, also called a social or private loan, is the fruit of British ingenuity. The basic principle of social lending concerns the conclusion of a contract between two natural persons – without the participation of financial institutions.
The concept of social lending is quite simple. Private investors can grant loans to other people through special websites. This can be compared to a loan from, e.g. a neighbor or friend, because also here a private loan agreement requires a minimum of formalities, and the terms of the loan are agreed between the parties to the contract. Loans from private investors allow you to finance small expenses.
Lenders are usually wealthy people who can afford to invest their money in the loan market. Private individuals who grant loans do not check entries. Typically, customers can also avoid checking their monthly income. Popular private loans, i.e. borrowing money on the principles of social lending, have its pros and cons, which are worth remembering before we decide on this form of financing. Below we present the most important advantages and disadvantages of these loans.
Advantages of social loans
Nowadays, taking out a social loan is a great solution for people who want to borrow money bypassing banks and financial institutions. Below are some pros of private investor loans.
- A large selection – the multitude of portals and the number of people registered in them translates into a multitude of loan offers. Therefore, we can find very small (for several hundred dollars) and very large (for example, refurbishment of the flat) loan offers. The loan amount spread is huge.
- Possibility of determining the loan terms and conditions;
- Money can be used for any purpose;
- The loan can be obtained completely via the Internet;
- Low costs of borrowing money
- Unlimited amount availability – from several hundred dollars to even one hundred thousand dollars;
- Low price – usually people who offer loans on such portals offer an interest rate much lower than what is currently in banks;
- A minimum of formalities – results from the very idea of social loans, which are designed to bypass banking and para-banking institutions when borrowing.
- for investors – an additional way to earn.
Cons of private loans
Each of us has probably heard about private loans, although we may not fully realize it. A private loan is nothing but money lent to one entity by another without the involvement of any financial institution or any intermediary. In principle, any individual person who has financial capacity can grant a loan. Here are some minuses related to the private loan:
- You cannot receive money immediately – you must wait for the loan auction to end;
- Not every loan auction ends with a loan;
- To attract investors, you must offer a high interest rate and pass a series of verifications that are payable;
- Difficulties in borrowing larger sums for new customers;
- Low level of security for investors. There is also a high probability and possibility of fraud;
- Taxation problem – applies to both sides of the loan.