Loan between individuals: advantages and limits

Does your bank refuse to grant you a personal loan, or impose an interest rate that you consider prohibitive? Where the only means of recourse were previously the restricted circle of family and friends, the rise of new specialized platforms on the web now makes it very easy for you to obtain a loan from other individuals.

While it only represents a market share that is still in its infancy compared to the heavyweights of banking and credit, lending between individuals (PAP or P2P) is generating increasing enthusiasm, especially among those who do not meet all the conditions to obtain a classic loan or who have urgent needs!

Loan between individuals: what is it?

Loan between individuals: what is it?

Even today, most individuals go to a bank or a credit institution, whether they want to take out a loan to buy a new car or even get a loan to finance work at home. If their application is accepted, the organization selected lends them money previously deposited in savings by other clients.

 In France, a large part of access to private finance is always through the intermediation of a bank or a credit organization.

How does the loan between individuals work?

The “personal loan between individuals”, or PAP/P2P, consists of a loan of money between two individuals, without any recourse to the banking system. This form of borrowing is of course as old as the world, but had experienced a decline as the banks became preponderant in financial exchanges between individuals.

Because it re-establishes a direct relationship between the borrower and the lender, the PAP/P2P has the effect of eliminating this banking intermediation. It obviously owes its recent development to the spread of the Internet and the appearance of new platforms specializing in lending between individuals and/or mass financing (“crowdfunding”, “crowdfunding” or “crowdlending”).

Loan between individuals without any fees in advance: is it possible?Loan between individuals without any fees in advance: is it possible?

Loans between individuals are to be distinguished from donation operations offered by other crowdfunding platforms. The fundamental difference is that the beneficiary of the credit must repay the borrowed amount increased by an interest rate.

The individual lender is thus remunerated. If certain costs are therefore inevitable, it is however essential to look at the costs which are sometimes demanded in advance.

No serious and honest lender will ask to advance fees before obtaining the loan: it is a golden rule! Such a request can lead to a scam: the fees are paid but the credit never obtained. It is therefore strongly advised not to pay money before obtaining the loan.

In addition, administrative fees cannot be required either for a loan between individuals, only banks have the possibility.

How to find a loan offer between serious and honest individuals?

Finding a serious and honest lender cannot be improvised. It is necessary to prepare your request and follow a few simple rules:

  • request a loan between individuals on a specialized platform ;
  • prefer platforms that are well established and whose reliability has been demonstrated ;
  • check the legal notices on the website.

Outside the platforms, the approach must be even better prepared. You can find out on forums and social media, or ideally get a referral from your family or friends. 

Loan between individuals: what does the law say?

Did you know? As Bank & Credit expert, recalls, “the law requires that any loan between individuals equal to or greater than 760 USD be declared to the tax authorities “.

In fact, this declaration entails a series of consequences:

  • for the creditor: the debt is part of his estate assets and the interest generated by the debt must be fully included in his declaration of income
  • for the debtor: the said declaration allows the latter to justify to whom it may concern that this loan cannot be qualified as a “manual gift”

Loan between individuals: the measures to be observedLoan between individuals: the measures to be observed

Beyond the obligations of declaration to the tax administration, certain measures are to be respected within the framework of a loan from individual to individual. Thus, the regulations impose a document making it possible to prove the subscription of the credit for any loan between individuals of an amount greater than $ 1,500.

This writing may take the form of a loan agreement or an acknowledgment of debt. In certain specific cases, written evidence such as email or SMS exchanges may be taken into account. However, this is not recommended and proof for either party will be more difficult to provide.

In addition, safeguards exist and prevent abuse. The usury rates defined by the Banque de France – which correspond to the maximum interest rates that may be required – are binding on private lenders as well as on institutional lenders.

What are the advantages of the loan between individuals?What are the advantages of the loan between individuals?

First and foremost advantage: the terms of a personal loan between individuals are freely defined between the borrower and the lender. Both parties, in particular, agree on the interest rate that applies, the repayment period (up to 5 years in some cases), the regularity of payments, etc.

From the debtor’s point of view, the loan between individuals is a precious resource when the profile of the borrower has been deemed too risky by banks and credit organizations, or even when the loans offered to him are too expensive.

Among the advantages of a personal loan between individuals, let us quote the freedom offered to the contracting parties to agree on the modalities of reimbursement of the outstanding amount.

This situation is far from affecting only indebted or low-income households. Thus, a loan between individuals may interest a young entrepreneur who does not yet have solid guarantees. Recourse to the loan between individuals on the Internet can then bring the necessary boost to the launching of his business, and avoids him any painful and embarrassing canvassing of his family and his friends.

For its part, the lender is generally attracted by high interest rates and much more attractive (5% and above) than most other financial products such as passbooks, futures or life insurance. It is, on most platforms, free to carefully select the files in which it wishes to invest, as a bank would do, and most often benefits from insurance taken out by the site in the event of default.

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