Loans between private individuals are considered an excellent option to borrow money. These loans are very common in the Asian continent and in Latin America, but lately they are becoming more popular in Europe, because financial institutions are becoming stricter when it comes to granting loans to clients.
In this important article, you will learn the precise meaning of the loans between individuals, likewise, you will know the interest rate of these loans, how they work, how they are regulated and why they can be a little dangerous for loan applicants who want to supply an immediate or future need.
What are loans between private individuals?
It is a type of financing that is carried out between two natural persons, without the need to have the approval of a financial institution. The contract is made between the lender and the debtor, as long as it is in accordance with the law.
In some countries, contracts for this type of loan are made in a spoken manner, as long as both loan participants have solid confidence.
But, at present, to avoid legal problems, loans between individuals are made through a contract drawn up by a lawyer, which determines the amount of interest to be paid and the term of the repayment of the loan.
Main characteristics of loans between individuals or individuals?
If family members or friends are lending money, the interest can usually have a value of zero or can be very small compared to a financial institution. But, in the case that the loans are requested from a third party, the interest may be higher than that which is quoted in the financial sector of the country.
Also, it is currently very common for this type of loans to be granted through loan guarantees, it can be a guarantee or a mortgage through real estate.
In the financial market, you can also find another type of loans between individuals, through the commitment of material goods such as jewelry, motorcycles, computers, etc. These loans are governed by the financial rules of the country, and are useful when you have a need, but the interests can be very high.
Really, are loans between private individuals dangerous?
Everything will depend on the country and the people who participate in the loan: the debtor and the lender. To avoid legal problems, loan applicants and lenders must establish a clear contract, specifying the amount of interest, payment dates, forms of payment and fees to pay off the loan.
The risk that can happen, is that people for a financial problem refuse to pay a loan, which can cause losses to the lender. Therefore, we always recommend that all loans between individuals, are made legally, through a written contract and signed by a competent lawyer.
Another risk of these loans is that interest can be very high and the repayment period is quite short, compared to loans in banks or other financial companies.