Peer-to-Peer Loans – Private Loans from Private Individuals?

Currently there are 6 different companies in the Czech Republic that mediate private P2P loans. Most intermediaries will charge a one-time fee of 1 – 2.5% of the loan amount.

Do you think that money can only be borrowed from a bank or from a non-bank credit company? This may not be the case. In recent years, a new type of loans has emerged. There are several different websites where people are looking for a loan with people who have some savings they want to appreciate.


What are peer-to-peer (P2P) loans

peer-to-peer loans

The development of these private, shared loans (also known as Peer-to-Peer, or P2P) is also strongly supported by the fact that banks on the one hand provide ridiculously low interest rates. Even with a term deposit or some convenient savings account, you will not achieve more than 1-2% appreciation.

At the same time, when the bank borrows money, so it says about 10-20% interest on the loan. And yet the bank works similarly to these P2P platforms. It is also a mediator between people who want to value their savings and people who need to borrow.

If the intermediary in the form of a bank is omitted, the whole loan can be many times cheaper. With these private loans from ordinary people, you can have a loan or loan, even as low as 3%. Or you can borrow money here, even if you are not currently eligible for a bank loan approval.


How do private loans from ordinary people work?

private loans from ordinary people work?

The whole system of these private loans consists of 3 elements:

  • People who want to borrow money (they want a loan)
  • People who want to invest their money
  • A website intermediary that mediates the entire transaction and verifies the applicant’s identity and verifies it in the registries, mediates financial transactions between investors and the borrower

The person interested in the loan registers on the relevant website, submits the required data and submits a request. It is then displayed to those who want to invest money. It is always the case that personal data such as name, address and other information about the applicant are not public – they are only seen by the platform operators. So there’s no need to worry about someone in your area learning that you are borrowing money.

One or more often (sometimes several dozen) private investors may respond to this loan demand. They will offer all or part of the required amount (some platforms do not even allow one investor to finance the entire loan in order to reduce the risk, so that the potential default is spread among multiple investors).

Once the required amount is met (and sometimes does not have to be the full amount), the funds are transferred to the borrower, who then repays it in monthly installments.


What are the risks of these private loans?

debt loans

The risks to the investor are probably clear. There will always be cases where a candidate will not repay. That is also why these loans are financed by several different persons in order to minimize the risk for the investor.

There is no significant risk for the borrower. It should be borne in mind that these private loans are strictly controlled and recovered in the event of default. Often it is only 30 days after the due date and the entire loan will be redeemed – the full amount due is required. There are also relatively high sanctions.

However, similar “hard” measures against defaulters are common in banks or non-banking companies, so this is nothing special.


How much does a private loan cost

How much does a private loan cost

The extent to which such a private loan comes to you is to some extent individual. Most intermediaries will charge a one-time fee of 1 – 2.5% of the loan amount, which is automatically deducted when the loan is paid out.

In addition, standard interest is charged. These can often be as low as 3%. However, if you act as a risky client – low income, some negative records in the registry, have you ever had problems repaying a loan, etc., then the interest may be significantly higher.

You are usually given a rating. The more information you provide (bank account statements, bank or non-bank account statements, etc.), the better your ranking and the lower your interest. Also, your rating can improve by taking even a small loan and repay it properly. The next time you can ask for more money.


Where to find these private loans?

Where to find these private loans?

Currently there are 6 different companies in the Czech Republic that mediate private P2P loans. Their overview and comparison can be found here.

In addition to Czech companies, it is also possible to find foreign providers of peer-to-peer loans on the Internet. But they need more caution. While Czech companies must be registered with the SaveYes Bank and are subject to its supervision, such foreign rules do not apply. Conditions for foreign P2P loans may be governed by the laws of another state. And they can be quite different from what is true in the Czech Republic.