Loans between individuals arise as an alternative when it comes to obtaining financing outside of traditional methods (banking, financial, etc.), but doubts also arise about their form and legality.
It is a mistake to treat loans between individuals as something "new", that a person can act as a lender has existed since 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 an individual's point of view, the question arises: Are loans between individuals legal? Are individual loans reliable as alternative financing?
All these questions will be resolved in this article.
- 1 How do loans between individuals work?
- 2 Are loans between individuals legal?
- 3 Loans between individuals and their taxation
- 4 Contracts in loans between individuals
- 5 Private money lenders without GUARANTEE
- 6 Loans between individuals with Mortgage Guarantee
- 7 How to apply for loans between individuals
- 8 Warnings and Recommendations
- 9 [REFERENCES]
How do loans between individuals work?
Anyone can act as a private lender and lend their money like a financial institution, the only drawback is assuming all the risk of their investment.
The benefit offered by loans between individuals for private lenders is their high profitability , which as a general rule tend to have a higher interest than those offered by a bank.
With this benefit, the risk involved in lending money to individuals or companies can be offset.
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 allow lenders to diversify their investments, thus reducing their risk and in some cases facing projects that they would not be able to tackle on their own.
Are loans between individuals legal?
At present, individual-to-private loans are not regulated by any law, however it is good practice to document them and know where the loans between individuals can be registered.
Any loan regardless of the parties involved in the matter is taxed through the property transfer tax and documented legal acts (TP and AJD) , said tax is managed by the autonomous communities and in each community it may suffer a variation.
To present the settlement of these taxes, the following models correspond: Models 600-620-630-610-615 and you can find your tax information in this link Models_TP_AJD .
There are platforms where lenders make loans between individuals online without endorsement with the only 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 in Real Estate Crowdlending platforms, a real estate guarantee is required to carry out an operation, that is, it is necessary to provide a property as collateral with the possibility of being mortgaged (apartment, house, chalet, 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 is limited to the maximum amounts that a lender with an investor profile can invest in a project.
This new regulation also emphasizes the profile of the lender or investor, dividing them into two groups of professional investors and non-professional investors .
This difference already existed before including professional lenders within a state registry, allowing them a loan with a mortgage guarantee between individuals .
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 said presentation, it will be necessary to identify the participants, the amount, the repayment terms and the date, as well as the rest of the conditions that are agreed 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 that its return will never be seen for free, but the existing market interest will have to be applied at the time of its celebration.
The private lender must declare in his personal income tax the income generated by his investments as a capital increase, paying his taxes in relation to his total profits.
Contracts in loans between individuals
A loan offer between individuals in Spain is closed by means of a contract in which its conditions are reflected.
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 will be applied and the rate.
A typical example would be the following:
Madrid as of ## / ## / ####
PRIVATE LOAN AGREEMENT
On the one hand D / Mr …………………… .., with DNI / CIF ………………., Marital status ………., Domiciled on the street ……………………… ……………………, floor… .., door…., Postal code ………. city …………………., province …………………………, hereinafter the APPLICANT / BORROWER .
On the other hand D / Mr …………………… .., with DNI / CIF ………………., Marital status ………., With address on the street ……………………… ……………………, floor… .., door…., Postal code ………. city …………………., province …………………………, hereinafter the LENDER .
Mr. BORROWER receives from Mr. LENDER the amount of ####. ###### as a loan. The repayment of said loan is agreed within 24 months from the ## / ## / #### date.
An interest percentage of 8% (APR) will be applied to said loan, which must be paid as a capital installment plus interest in 24 installments of an amount ####. ##### €.
In Madrid on ## / ## / ####
BORROWER SIGNATURE LENDER SIGNATURE
This contract is a very simple document that can reflect the conditions of a money loan between two people. Said contract can be extended with the concepts, details and conditions agreed previously.
These contracts can be made public before a notary public to extend their legality, taking into account that it would increase the costs of the management in exchange for their security.
Private money lenders without GUARANTEE
Private money lenders without endorsement, enter into contracts between the private lender and the applicant in which the provision of an endorsement or guarantee to support their investment is not required as a condition without equanon.
This frees the loan agreement from conditions other than our simple personal contribution.
This implies that in the case of breach of the contract on our part, the claim of the private 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 guarantee 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 this type of loan have filters and algorithms that assess the applicant's repayment capacity.
Situations such as the lack of justification of income, delinquency lists, Credit Checker, RAI , judicial situations, embargoes, etc., cause the denial of the application.
For these situations, loans between 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 the Credit Checker is a new situation in which we will have to provide something more than our personal guarantee. As a general rule, we will be required to have a guarantee (natural person or real estate) that guarantees the risk of having a history of delinquency.
For these cases in which the borrower is in a difficult situation , there are financing solutions such as private equity loans , or the provision of a guarantee or guarantee to cover the risk of the application.
- There are quantity limits to request
- You have to prove income
- You cannot be on Credit Checker, RAI delinquency lists
- There is a maximum period to return the money
Loans between individuals with Mortgage Guarantee
Loans between individuals with a mortgage guarantee are those in which the applicant offers a real estate guarantee or guarantee with the ability to be mortgaged.
The main difference between a loan between individuals without collateral and another with a home equity is in your contract.
While the loan contract without collateral is simple to write and its management cost is practically zero, the contract with a mortgage guarantee is made before a notary public and is registered 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.
The real estate that lenders typically accept:
- Urban ground
It must be taken into account that the costs of managing loans between individuals with a mortgage guarantee are high, the notary's office, registry registration, Documented Legal Acts tax and the commission of the manager or lawyer who mediates in their process.
Steps to make a loan between individuals with Mortgage Guarantee
The procedure to carry out this type of loan is a procedure that has to be carried out with a series of steps that we detail below:
1. Presentation of the Mortgage GUARANTEE
In the first place, it is necessary to present a Mortgage GUARANTEE for its valuation by private lenders.
Usually the guarantees are usually free of charges, or with outstanding debts that can be canceled with the requested mortgage loan.
The reason is that as the loan is in first charge, the lender acquires greater control and security over the GUARANTEE presented in the event of default.
2. Know the Market Value / Appraisal of the Guarantee
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 what amount of money he can offer the lender.
For this process, an appraisal of a company approved by the Bank of Spain is carried out, but which will not be conclusive in all cases, but it will be very necessary to carry out the minutes before a notary public .
The area where this guarantee is located is also very important.
If the guarantee provided is in the provincial capital, it will have much more value than if it is 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 said value.
In most cases, both the financial companies that are dedicated to making loans between individuals with Mortgage Guarantee 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 study and valuation.
4. Signature of the mortgage loan before a Notary Public
The entire process is completed before a notary public by signing a minute with all the loan conditions.
Loans between individuals with a home equity guarantee are usually the safest for creditors and obviously more risk and responsibility for debtors.
Advantages of loans between individuals Mortgages:
- The loan is almost always granted
- Obtain up to 30.40% of its appraised value
- No need to submit income
- You can get a longer term
- Possibility of Deficiency and pay only interests
Disadvantages of loans between individuals Mortgages:
- You need to contribute a property
- This must be free of charges (without mortgage)
- Has appraisal expenses
- There are notary fees, management, registration
- In case of non-payment, your property covers the debt.
- Loans between individuals in SEattle Meditation
At SEattle Meditation our financing product is similar to a bank line of credit with total availability in your firm and which can be accessed by individuals, freelancers and companies.
What does this mean?
The characteristic of this way of financing is direct on the guarantee that is provided, this offers us credit solutions when financial institutions deny our requests.
Urgent moments in which we have to have money to, for example, cancel an embargo, debts, Credit Checker, RAI, legal problems or any other situation in which normally a financial institution denies us their help.
Keep in mind that these loans are for a specific term, 1, 2, 5 to 10 years for their full repayment .
How to apply for loans 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 is the purpose of the loan and what plans you have to return the money.
Secondly, we will present your application to registered investors, waiting for them to submit their offers or show interest in your application.
Third, and when we already have an offer from an investor, the applicant receives it.
The appraisal 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.
Forms of payment and interest
Depending on the type of collateral provided and the offers received, a home equity loan can be repaid in a number of ways.
- Amounts less than € 25,000: This type of loan can normally be offered in installments of capital 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 the interests are settled annually in a single installment or through monthly payments. This product is similar to a bank credit account that is fully available on the day it is signed. The fixed interest rate and can range from 10% to 12%.
Warnings and Recommendations
SEattle Meditation has been making loans between individuals since 2011, and is registered as a financial intermediation company in the Ministry of Consumption .
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 Bank of Spain that can be chosen by the applicant.
All operations are signed before a notary public, if the borrower so wishes, the minute 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 notary's electronic signature system.
Our clients are our most important asset, we follow up throughout the loan stage and answer all your questions throughout the 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 situation Credit Checker, CIRBE, or the impossibility of showing income / payroll.
Another advantage that you can obtain is the amount that you can request, which in most cases will be higher than what a P2P platform with a personal guarantee can offer you, these platforms generally do not offer amounts greater than € 15,000.
Another fact to take into account is the expenses involved in making a loan with a real guarantee such as the notary's office, 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 consumer cases such as buying vehicles, home renovations or travel.
- OCU Interest-Free Loan Agreement - Click here
- Simple Note of Property - Registrars
- Property Appraisal - TINSA
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