Loans between individuals arise as an alternative when it comes to obtaining financing outside the traditional methods (banking, financial, etc.), but there are also doubts about its form and legality.
It is a mistake to treat loans between individuals as something “novel”, that a person can act as a lender exists from the origins of the economy.
Today the information that can be obtained on how to make loans between individuals is very extensive, and specialized user platforms have appeared in which we can request an offer of loans between individuals online.
From the point of view of an individual the question arises: Are loans between individuals legal? Are loans between individuals reliable as alternative financing?
How do loans between individuals work?
Any person can act as a private lender and lend their money just like a financial institution, the only drawback is to assume all the irrigation of your investment.
The benefit offered by private loans to private lenders is their high profitability , which generally has a higher interest than those offered by a banking entity.
With this benefit, the risk of lending money to individuals or companies can be compensated.
In recent years, participatory financing platforms are emerging on the Internet, where users register to request financing (borrowers) and others to invest their money (lenders or investors).
These platforms favor that the lenders diversify their investments thus reducing their risk and in some cases facing projects that by themselves would not be able to address.
Are loans between individuals legal?
At present, loans from private individuals to private individuals are not regulated by any law, however it is a good practice to document them and know where loans can be registered between individuals.
Any loan regardless of the parties involved in the matter is taxed through the tax on property transfers and documented legal acts (TP and AJD) , said tax is autonomous management and in each community may suffer a variation.
There are platforms where lenders make loans between individuals online without collateral with the sole personal guarantee of the applicant (borrower), this means that the responsibility in case of default is covered by the natural person with their present and future assets.
But on Real Estate Crowdlending platforms, a real estate guarantee is required to perform an operation, that is, it is necessary to provide a property as a guarantee with the possibility of being mortgaged (floor, house, villa, commercial premises, building). This business model tries to protect the investment in case of default by the applicant.
Currently, participatory financing platforms have been regulated by a new law for Crowdfunding, in which the main data limits the maximum amounts that a lender with an investor profile can invest in a project.
This new regulation also emphasizes the profile of a lender or investor by dividing them into two professional and non-professional investor groups.
This difference already existed previously including professional lenders within a state registry, allowing them a home equity loan .
Loans between individuals and their taxation
As we have commented in the previous point, the constitution of the loan regardless of the nature of the participants is associated with the presentation of the Tax on Patrimonial Transmissions and Documented Legal Acts .
Loans between individuals are in principle exempt from taxes , but we have the obligation to present them to the Public Treasury . In this presentation the participants will have to identify the amount, the return deadlines and the date, as well as the rest of the conditions established in the agreement.
With regard to personal income tax , the treatment of the loan is similar to that which banks or credit institutions can carry out, so their repayment will never be seen for free, but the existing market interests will have to be applied at the time of your celebration
The private lender must declare in its personal income tax the income generated by its investments as a capital increase, paying its taxes in relation to its total benefits.
Contracts in loans between individuals
A loan offer between individuals in Spain is closed by means of a contract that reflects their conditions.
The most important parts that must appear in a contract to lend money between individuals are the following:
- Place and date of celebration
- Personal data of the borrower and the lender
- Loan amount
- Loan duration
- Whether or not interest and type will apply.
This contract is a very simple document that can reflect the conditions of a money loan between two people. Said contract may be extended with the concepts, details and conditions previously agreed.
These contracts can be raised to the public before a notary to extend their legality taking into account that it would increase management costs in exchange for their security.
Private money lenders without Loan Standing
The private money lenders without collateral, make contracts between the private lender and the applicant in which it is not required as a condition without equanon, the provision of a collateral or guarantee that supports your investment.
This frees the loan contract from conditions that are not our simple personal contribution.
This implies that in the case of breach of the contract on our part, the claim of the particular lender would imply the seizure of the assets and income that we have at the time of the claim through judicial process
Loans between individuals without the provision of any collateral or guarantee are the easiest way to obtain financing for cases such as the purchase of a vehicle, a trip, a computer, etc., which is commonly called consumer loans .
The participatory financing platforms (Crowdfunding) that offer these types of loans have filters and algorithms that assess the applicant’s repayment capacity.
Situations such as the lack of justification of income, Financial Standing delinquency lists , RAI , judicial situations, embargoes, etc., cause the application to be denied.
For these situations, loans between private individuals without collateral are not the solution. In most of the platforms that exist, they reject applications that have some type of incident that declares that the applicant has a history of delinquency.
How to get a loan while in Financial Standing is a new situation in which we will have to contribute more than our personal guarantee. As a general rule, we will be required to have a guarantee (natural or real person) that guarantees the risk of having a delinquent history.
For these cases in which the borrower is in a difficult situation , there are financing solutions such as private capital loans , or the provision of a guarantee or guarantee to cover the risk of the request.
- There are quantity limits to request
- You have to show income
- You cannot be on delinquent lists Financial Standing, RAI
- There is a maximum term to return the money
Loans between individuals with Mortgage Guarantee
Loans between individuals with mortgage guarantees are those in which the applicant offers a guarantee or real estate guarantee with the ability to be mortgaged.
The main difference between a loan between private individuals without collateral and another with a mortgage guarantee is in your contract.
While the unsecured loan contract is simple to write and its management cost is practically zero, the mortgage guarantee contract is made before a notary and is recorded as a property charge.
For a loan applicant, it is a serious disadvantage to guarantee a property, it carries a serious risk in the case of default. However for private lenders it is a much safer operation.
In the end a mortgage loan between individuals is equivalent to a bank mortgage with the participation of private lenders.
Real estate that lenders usually accept:
- Urban ground
It should be taken into account that the costs of managing loans between individuals with mortgage guarantees are high, the notary, registration, tax Documented Legal Acts and the commission of the manager or lawyer that intermediates in its process.
Steps to make a loan between individuals with Mortgage Guarantee
The procedure to make these types of loans is a procedure that has to be done with a series of steps that we detail below:
1. Presentation of the Mortgage Loan Standing
First of all it is necessary to present a Mortgage Loan Standing for its valuation by private lenders.
Usually, guarantees are usually free of charges, or with outstanding debts that can be canceled with the requested mortgage loan.
The reason is that when the loan is in first charge the lender acquires greater control and security over the Loan Standing presented in case of default.
2. Know the Market Value / Guarantee Appraisal
When the applicant presents his guarantee we will have to know the value that it currently has in the market , this gives an estimate of how much money he can offer to the lender.
For this process an appraisal of a company approved by the Bank of Spain is carried out, but not in all cases will be conclusive but very necessary to make the minutes before a notary .
The area where that guarantee is located is also very important.
If the guarantee provided is in provincial capital, it will have much more value than if it is located in a less valued town or area.
Finally, when the value for which it is estimated that it can be offered is available, the lender or investors of a participatory platform can offer a percentage of that value.
In most cases, both the financial companies that are dedicated to making loans between individuals with Loan Standing Hipotecario and the lenders currently offer 40% of the estimated value.
3. Presentation of Minutes and Loan Conditions
After the mortgage valuation the lender will offer a binding offer with all the conditions of the mortgage loan for its study and valuation.
4. Signing of the Mortgage Loan before a Notary
The entire process is finalized before a notary by signing a minute with all the loan conditions.
Loans between individuals with mortgage collateral are usually the safest for creditors and obviously more risk and liability on debtors.
Advantages of loans between Mortgage individuals:
- The loan is almost always granted
- Obtain up to 30.40% of its appraisal value
- No need to submit income
- You can get a longer term
- Possibility of lack and pay only interest
Disadvantages of loans between Mortgage individuals:
- You need to provide a property
- This must be free of charge (no mortgage)
- It has appraisal expenses
- There are notarial expenses, management, registration
- In case of default your property covers the debt.
- Loans between individuals in Stage Manager
In Stage Manager our financing product is similar to a bank credit line with full availability in your firm and which can be accessed by individuals, freelancers and companies.
What does this mean?
The characteristic of this form of financing is direct on the guarantee that is provided, this offers us credit solutions when the financial entities deny our requests.
Urgent moments in which we have to have money to, for example, cancel an embargo, debts, Financial Standing, RAI, judicial problems or any other situation in which normally a financial entity denies us its help.
Keep in mind that these loans are for a fixed term, 1, 2, 5 to 10 years for full repayment .
How loans are requested between individuals
First of all we study your request and the guarantee you present to us. We need to know how much money you need, what the purpose of the loan is and what plans you have to return the money.
Secondly, we will present your request to registered investors, waiting to present their offers or show interest in your request.
Thirdly, when we already have an offer from an investor, the applicant receives it.
The valuation of the guarantees provided and the final signature before a notary are the last steps to obtain the money, you can see in this link how it works.
Payment methods and interest
Depending on the type of collateral provided and the offers received, a home equity loan can be repaid in several ways.
- Amounts less than € 25,000: These types of loans can normally be offered in capital installments plus interest in a term not exceeding 5 years. They usually have an interest rate around 12% per year.
- Amounts greater than € 25,000: These loans are made with the intention of solving a temporary credit situation, only interest is paid annually in a single installment or through monthly payments. This product is similar to a bank credit account with full disposal on the day of your signature. The fixed interest rate and can range from 10% to 12%.
Warnings and Recommendations
Stage Manager has been making loans between individuals since 2011, and is registered as a financial intermediation company in the Ministry of Consumer Affairs .
We have a civil liability insurance of € 400,000 .
The appraisals of the guarantees will be carried out by an appraisal company approved by the Good Finance Bank that can be chosen by the applicant.
All transactions are signed before a notary receiving the borrower if he wishes the minutes that will link him to the loan.
The notary can be in the same city as the investor who lends the money or in a different place, thanks to the electronic signature system of the notaries.
Our clients are our most important value, we follow up throughout the loan stage and answer all your questions during the entire process.
The advantage of providing a real guarantee, will be that in most cases if you have a good guarantee you will obtain financing regardless of your credit status Financial Standing, or the inability to prove income / payroll.
Another advantage that you can obtain is the amount that you can request, which in most cases will be greater than what a P2P platform with personal guarantee can offer you, these platforms as a rule do not offer amounts greater than € 15,000.
Another fact to take into account are the expenses involved in making a loan with a real guarantee such as the notary, taxes on legal acts, appraisal, opening commission and intermediation expenses.
These loans are for important cases in which financing is needed, they are not ideal for consumption cases such as buying vehicles, house renovations or travel.