What are P2P loans?
With peer-to-peer credit (P2P credit for short), loans are brokered between private individuals. Lenders and borrowers come together via online platforms and largely negotiate the loan terms individually. Lenders benefit from lucrative interest rates for P2P loans, borrowers have a fair chance of money even with poor creditworthiness.
Who can apply for P2P loans?
The rules for applying for a peer-to-peer loan are generally more relaxed than for the classic installment loan. Nevertheless, there are some requirements that you have to meet. These are:
- Legal age
- some providers have an age limit of 65 years
- regular income; P2P loan provider Smava, for example, requires a minimum income of $ 1,000 per month
- Residence in Germany and a checking account with a German bank.
Some P2P loan providers also require permanent employment; other platforms have restricted the provision of P2P loans to private individuals. People who have received a warrant, who are insolvent or who have been seized of wages are generally excluded from applying for P2P loans. It is advisable to carefully check the requirements of the different providers in order to find the right P2P platform.
Credit despite bad Credit Bureau – who benefits from P2P loans
With P2P loans, people who have insufficient creditworthiness or low or irregular income also have a chance of getting money. P2P loans are particularly interesting for the following groups of people:
- Self-employed and freelancers
- Loan seekers with a low Credit Bureau score
- Temporary workers
- Company founder
Your individual scoring – even with personal loans, nothing works without creditworthiness
As a general rule, you should only take out loans from a private person if you are also able to repay the loan in monthly installments. To ensure this, the P2P loan providers create an individual scoring that gives the lenders information about your credit rating. However, the P2P scorings are broader than the Credit Bureau score, which is often used as the sole key figure when granting classic installment loans. Up to 300 characteristics relevant to creditworthiness are included in the scoring. These include e.g. For example, according to Fine Bank, “for example the Credit Bureau score and the Creditreform creditworthiness indicator, as well as internal information such as application and behavior data or any collateral provided by the loan seeker”. The financial situation of the applicant can be depicted in a much more complex and differentiated manner. You do not have to fear a hasty rejection due to poor Credit Bureau.
Advantages and disadvantages of P2P loans at a glance
Benefits of P2P loans
- Credit opportunities even with poor credit ratings
- Anonymous request possible
- The self-employed can convince private investors of their plans without much effort
- fast processing
- free special repayments possible
Disadvantages of P2P loans
- comparatively high interest rates if the creditworthiness is poor
- Platform fees; up to 6% of the total loan amount
Apply for P2P loan – in 10 steps to personal loan
Step 1: Register with a P2P platform
There are now several established P2P platforms on the German financial market. You can find out which P2P loan provider is suitable for you in our P2P loan comparison. Once you have chosen a provider, open an account. To do this, first enter your email address and choose a password. As a rule, the platform will now send you an activation link. As soon as you have clicked this and logged in successfully, your account will be activated. Now you have to provide further information – about yourself and your financial situation. With Smava, for example, a small household bill is necessary, in which you compare your income with the expenditure. Be sure to be honest and accurate to avoid over-indebtedness and loan rejection.
Step 2: Determine the financing terms of the desired loan
In the next step, you determine the cornerstones of the desired loan. With the P2P loan provider Fine Bank, for example, $ 1,000 – $ 50,000 with a term of 12 – 84 months is possible. At Smava, the range is $ 1,000 – $ 75,000 with a term of 12 – 120 months. Fellow Finance arranges P2P loans up to $ 10,000 with a term of 2 – 10 years
Step 3: Accept an interest rate on P2P loans
Now the platform proposes an interest rate for your financing project. This is determined within a few seconds and is adapted to your financial situation and the purpose of the financing project.
You have to expect that the interest rate for P2P loans will be higher if the credit rating is poor. For example, Fine Bank gives interest from 3.2% with a very good credit rating and from 15.9% with a very poor credit rating. The high interest rate with poor creditworthiness is due to the fact that lenders take a higher risk of default.
Step 4: Describe your financing project
If you want to accept the P2P loan at the interest rate offered, in the next step introduce your financing project to potential donors. You should proceed as precisely as possible and provide any collateral to find investors for your loan application. In contrast to conventional loans, the bank does not decide whether you get a loan, but you have to advertise yourself and your project.
Step 5: Have your credit rating checked
After you have described your credit request, the platform carries out a credit check. Finally, the platform must ensure that creditors get their money back and the promised interest. However, as described above, the scoring includes many other criteria in addition to Credit Bureau information and is intended to predict possible lenders how likely it is that you will repay the borrowed money.
Step 6: Get your loan application approved or rejected
Now the platform decides whether your loan application will be published. As mentioned above, there are some negative criteria, such as B. an existing arrest warrant or bankruptcy, which exclude the application for a P2P loan. And even if your financial situation does not match your financing project, the platform operators may not agree to publication.
Step 7: Find lenders
Your loan application will now be anonymized, but will be published on the platform with your introductory text and the scoring determined for you. With some P2P loan providers, the ad can also be found via Internet search engines. This is to ensure that you reach as many interested lenders as possible. With most platforms, the loan application is limited to a period of 2 to 3 weeks. During this time, lenders can now be found for your project, i.e. people who want to invest your money privately and finance your loan. For larger loan amounts, the amount is usually pooled. The individual lenders often only participate with sums between $ 100 and $ 300, so that the risk of loan default is not too high for the individual lender. You can use the platform to track the progress of your loan application and see exactly how many donors have already found your project.
Auction the interest rate of your P2P loan
There are differences between providers when determining the interest rate for your peer-to-peer loan. With fellow finance, for example, the interest is negotiated individually between the borrower and the lender. After your loan application has been published on the platform, lenders can apply for the loan in an auction. This process has the advantage for borrowers that they always get the cheapest interest rate. There is no realistic assessment by the platform of which interest rate is suitable for your project.
Step 8: Identify yourself and submit the documents
If your loan was obtained as a private loan, your identification to the platform is carried out via the Postident procedure and your signature is made under the loan agreement. Some P2P loan providers require pay slips to be submitted, while others only send random requests. In order not to provoke an unnecessary delay here, you should send the documents in your interest as soon as possible or have them ready for any questions.
Step 9: Enjoy the payment of your loan
If your loan application is approved and there are enough donors, the payment is usually made quickly. Platforms like Fine Bank and Smava advertise that over half of P2P loans are processed as instant loans and that you can count on the money very quickly. For payment, however, it is necessary that the signed loan documents are sent to the corresponding partner bank of the platform. Only when these have been received and checked there will your money be paid out – minus the processing fees for the platform. Some P2P loan providers are accelerating this process with video identification and digital signature. As a rule, you still have to expect a few working days before your loan is paid out.
Step 10: Pay off the peer-to-peer loan
Like classic installment loans, P2P loans are paid off in monthly installments. You transfer the money to the intermediary bank, which forwards it to the lender. Some platforms also offer payment via SEPA direct debit, which makes it even more convenient for you. Most P2P loan providers offer great flexibility in repaying the installments. Free special repayments, early loan repayment and payment breaks are not uncommon.
Legal background of P2P loans
Although everything looks like a P2P loan as if it were exclusively a business between private individuals, the legal situation is different: private investors and borrowers do not become contractual partners. The loan runs through an intermediary bank. The background is the legal situation in Germany. In this country, the lending of money is punishable by a private person and since the platforms only act as intermediaries and do not have a banking license, a bank must be interposed to handle the money transfer.
The P2P loan offers of the major platforms in comparison
You can find a variety of P2P platforms on the Internet. We took a close look at the largest and most established providers and show you where the differences in P2P loan comparison lie.
First of all, it is important that you choose a platform that mediates your financing project at all, i.e. is aimed at private or commercial interested parties. Other criteria for choosing the right P2P platform are:
- Loan amount
- running time
Comparison of P2P loan providers
|Smava||Fine Bank||Fellow Finance||Lendico|
|Registered office / year of foundation||Germany, 2007||Germany, 2007||Finland, 2013||Germany, 2013|
|target group||Private||private and commercial||private and commercial||commercial|
|Loan amount||$ 1,000 – $ 75,000||$ 1,000 – $ 50,000||$ 1,000 – $ 10,000||$ 10,000 – $ 250,000|
|running time||12 – 120 months||12-84 months||12-120 months||12-60 months|
|Mediation fee (% each on the loan amount)||depending on the term: 0% for 36 months / 3% for 60 months / 3% for 84 months||3.50%||depending on the amount: 3% for loans from $ 1,000 – $ 2050/6% for loans from $ 2,050.10 – $ 10,000||Fees are included in the interest rate: between 1.9% and 6.6%|
|Service / administration fee||not||$ 2.50||0.0012% – 0.22% monthly of the loan amount||no|
Calculate borrowing costs for P2P loans
The most important comparison criterion, the interest rate, cannot be shown in the table, since the interest, as described above, is determined individually for the P2P loan by the platform for your financing project. However, the differences between agency and administration fees are comparable. In order to get absolute clarity about your financing project, it is necessary that you add all costs and fees incurred to the determined interest and calculate it over the entire term.
For whom are P2P loans worthwhile?
At first glance, the benefits of P2P loans outweigh them. Before making a loan request, however, you should check carefully whether there are alternatives to the relatively expensive P2P loan. Banks often offer loans that are tailored to the needs of individual groups of people.
- Students can also use a student loan, for example,
- A car loan can be worthwhile for the purchase of a vehicle
- and freelancers and the self-employed may benefit from a self-employed loan.
You should only choose a peer-to-peer loan if you have little chance of a classic loan due to your poor credit rating. Otherwise, conventional loans are almost always cheaper than P2P loans.
What can I apply for a P2P loan for?
P2P loans are suitable for various financing projects. Common reasons for applying for a P2P loan are:
- Debt restructuring, ie repayment of other loans
- Balance of the dipocredit
- Car finance
- Purchases of consumer goods
- Starting a business
- Investment in corporate projects
- Covering ongoing operating costs
In general, financing projects that have a countervalue as security, such as the purchase of a car or investment in production machines, have a higher chance of being approved than financing a vacation, for example. There is no equivalent here and creditors run a higher risk of not getting their money and agreed interest back.
The 5 most important questions about P2P loans
How do P2P loan providers check borrowers’ creditworthiness?
P2P loan providers use their own scoring to determine the creditworthiness of the loan application. Up to 300 different criteria are included in the scoring, which vary depending on the provider. Conventional credit rating features such as the Credit Bureau Score are also taken into account, but not exclusively. This means that prospective buyers with a poor Credit Bureau score also have chances for P2P loans.
What loan amount can I apply for?
That depends on the provider. There are providers that provide P2P loans up to $ 250,000.
Is Credit Bureau reporting that a P2P loan has been taken out?
Yes. Every borrowing is recorded at Credit Bureau. This is necessary so that borrowers are protected against over-indebtedness.
What are the costs of P2P loans?
In addition to the interest, you pay a one-time agency fee for P2P credit. Depending on the provider, this amounts to 3% – 6% of the loan amount. In addition, some providers have a service fee for the bank and account maintenance costs can also be charged. Before taking out a loan, you should carefully examine the costs that will be incurred in detail and compare the providers to find the best offer.
Payment of the fees is usually simple: the costs of P2P loans are included in the monthly installment, so you do not have to pay them separately.
Can I withdraw from a peer-to-peer loan?
Yes. Since you take out a peer-to-peer loan via the Internet, there is a 14-day statutory right of withdrawal. You must submit your revocation in writing and preferably by registered mail to the platform in order to be able to prove it in the event of queries.