Loans from private individuals

What is a loan from a private individual

A loan from a private individual is a transaction in which a private investor acts as the lender, rather than a bank or microfinance organization. Simply put, one individual lends to another individual to make a profit. The terms of such transactions are less favorable for the borrower than even applying to an MFO. Nevertheless, this service is popular and is used by people with a spoiled credit history and active debts who are not even approved for microloans at the highest interest rate.

Features of a loan from private individuals:

• the lender is a private individual, which means that when taking out a loan, at best your relationship will be governed by a loan agreement, and at worst by a regular receipt;
• the target audience of private lenders consists of people with overdue payments and current legal proceedings, in a word, those who are refused by banks and microfinance organizations;
• interest rates for these types of lending are even higher than in MFOs, as they are not regulated by law in any way;
• lending large amounts may require collateral in the form of real estate or a car.

Where to find a private lender

There are special websites on the internet for matching private lenders. Their essence is the same as that of bank aggregators — to find suitable offers according to your requests. To find an investor, you will need to specify the loan amount and term, and then select the appropriate options.

There is another way — to find a private lender on classifieds boards in newspapers or social networks. But we do not recommend resorting to this method, because in this case it will be more difficult to identify scammers due to the fact that you will not be able to find reviews about their activities.

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How to verify the integrity of a private lender

Finding a conscientious private lender is much harder than it might seem at first glance. Due to the fact that this sphere is practically unregulated by the state, it is full of scammers. Therefore, if you are offered a private loan on terms that are too favorable for you, you can be almost certain that they are trying to scam you out of money.

What signs should make you think that you are dealing with scammers:

1. You are required to pay for additional services. Private investors earn money solely from loan interest. Therefore, additional paid services and requests for prepayment should make you think that you are dealing with scammers who will disappear as soon as you transfer money to them.
2. Terms that are too favorable. If you are offered a large amount at a low interest rate without collateral, you can be sure that you are dealing with an unscrupulous lender. Private investors will never take risks and issue large loans to new borrowers without a guarantor.
3. You are asked to send copies of documents. This is how scammers collect personal data of borrowers in order to take out loans and credits in their name.

We have discussed what signs can give away scammers. Now let's figure out how to find real ones among the many offers:

1. The lender has their own office and insists on a personal meeting. Scammers are not tied to addresses, so having their own office suggests that you are most likely dealing with a conscientious investor. In addition, scammers insist on online transfers for their own safety and will not meet with the borrower.
2. A good sign will be the presence of their own website through which the lender operates.
3. The lender insists on a certificate of income or a bank statement. The investor takes a huge risk by issuing a loan to a new person, so the borrower having an income will guarantee that the debt will be repaid.
4. The lender requires collateral. When lending large amounts, conscientious investors always ask to protect themselves against non-payment of the debt and provide real estate or a car as collateral.

 

Note.

When presenting collateral, never sign a sales contract or a deed of gift. Only a loan agreement can regulate private lending with collateralized property.

Pitfalls of private lending

The work of banks and microfinance organizations is controlled by the Central Bank, so by applying to companies licensed by the Bank of Russia, you do not have to worry about suddenly being deceived. And what about private lenders? When taking out loans from them, you can only hope for compliance with civil law norms.

Despite the fact that even such loans are issued with the conclusion of a loan agreement, borrowers often fall into debt traps. This happens as follows:

1. The borrower takes out a loan with the conclusion of an agreement.
2. At the moment when it is time to repay the debt, the lender “disappears”.
3. The borrower misses the loan repayment deadline.
4. While the debtor tries to figure out how to close the loan, interest and late fees continue to accumulate on top of the original debt.
5. The creditor files a lawsuit against the borrower to recover the overdue debt.

And although courts in such cases most often side with the deceived borrower, legal practice includes cases where decisions were made in favor of the creditor.

Finally, here are a few tips on how to spot a scammer based on reviews:

1. If you only have the creditor's mobile phone number, use special services. For example, the Getcontact mobile app. If the investor is not trustworthy, you will see this from their trust rating and hashtags.
2. Whenever possible, find out the creditor's full name and search for it online. If the investor is real, you will find reviews of their services as well as loan offer listings.
3. If you are scheduled for a meeting at an office, be sure to look up the company by its address. If the creditor is a scammer, you will undoubtedly find negative reviews about the investor's work.