In times before the internet, daily newspapers often found advertisements such as “Private loan search”. What had in those days the stable smell of poor creditworthiness, has become today a business model, which finds more and more followers. P2P loans, the short form of peer-to-peer lending, means nothing more than direct lending without the intervention of banks or other financial service providers.
Online portals make it possible
The first credit facility of its kind was established in 2005 in the United Kingdom. The procedure is simple. A borrower places his loan request anonymously on the net, presenting himself and the project to be financed. In some cases, the borrower also suggests the interest rate he is willing to pay.
Potential donors, also anonymous, can decide if, and if so, how much, they want to participate in the project. In the rarest cases, only one person finances a complete project. For the lenders, this model has the advantage that they can put together a portfolio of different loans that are more profitable than deposits with a bank, but have no price fluctuations compared to equities.
The target groups for P2P lending
The borrowers are of different nature. These are not just poor creditors who would not stand a chance of getting a loan from banks. The reputation of banks has suffered greatly in recent years. Many borrowers simply want to bypass the credit institutions this way. In addition to private individuals, however, more and more company founders are resorting to P2P loans. Banks are currently rather closed to innovative business ideas. On credit marketplaces, on the other hand, there are more and more people who see potential in start-ups and want to profit from the profits of budding entrepreneurs.
P2P lending is also appealing to many self-employed with short-term financial needs. It is well known that the banks and savings banks are having a hard time offering a classic installment loan to this professional group due to the lack of salary assignment.
The fact is, however, that who regularly and with profit intention lends money, according to the Bafin is a license. This also applies to private individuals who repeatedly lend money through a platform. Creditend and trucredit have circumvented this issue by involving a bank. The respective bank, PAR Bank at trucredit, the fidor bank at Creditend, are the contractual partners of the lender and the borrower.
The volumes are rising steadily
While it was still around 118 million US dollars in 2005, the number in 2006 already rose to 269 million US dollars. In 2012, private lenders have already provided 1.5 billion euros worldwide in the form of P2P loans. In 2015, the volume of these loans has already reached € 2.1 billion across Europe. A significant proportion of the volume of peer-to-peer loans are so-called microcredits that are not issued by the bank.
Without credit, nothing is synonymous with P2P
For Germany, there must also be a minimum credit rating for the local credit platforms. Anyone who does not get credit from a bank for creditworthiness, certainly has opportunities in the P2P segment, provided that it has certain minimum standards, such as no personal bankruptcy or pending proceedings or too many negative Private Credit entries. For investors, the interest rate includes the risk. More risk-averse investors will also enter into more daring financing in favor of interest.
The borrowers always have to undergo a credit check on the German platforms.
P2p credit without Private Credit
The best chances for a P2p loan despite bad Private Credit you have at trucredit. You can find more loans without Private Credit in the loan without Private Credit provider comparison.
The benefits of the P2P loan
- Opportunity to borrow even with weaker credit ratings
- Capital for innovative business start-ups
- Bypassing the banks
- “Social lending” increases the return rate in theory.
- Supervision of loan processing and repatriation through fiduciary administration
- Interest rate partially negotiable
- Fixed, predictable interest on the deposit
- Create money with risk spreading by participation in different projects
- Fiduciary supervision
The disadvantages of the P2P loan
- Project is only tendered for a limited time.
- If there are not enough sponsors, the request will be forfeited
- Strict tender criteria
- Risk of total failure
What to look for in a tender?
No financier buys the cat in a poke. Therefore, it is important for credit seekers to describe themselves and the project to be funded as comprehensively as possible. In terms of personal circumstances and creditworthiness, the platforms in this country often offer graded credit check processes. The higher a borrower dares, the better his chances of finding financiers. The project description is also about the detail. It is hardly enough to say that a carport should be financed. Successful is the accurate representation of the carport with a proof, why what costs how much, and why the desired loan amount is needed.
If the platform offers the possibility for the borrower to propose the interest itself, this should be in line with the market and also take into account possible deficits in creditworthiness.
Which providers are there in Germany?
The number of providers in Germany has increased in recent years. Whereas in the beginning only two platforms have ventured into this unknown terrain, today borrowers and lenders can choose from a variety of platforms.
Creditity, based in Berlin, was launched in 2013. The company is funded by Rocket Internet and is active in several European countries. Initially only loans from private to private were arranged, Creditity opened in 2015 for small and medium-sized companies.
Borrowers have no option at Creditity to propose the interest rate themselves, but receive it from the company as part of the loan request.
Creditity divides the loan applications into five classes, depending on the borrower’s credit rating. For the lenders, this results in a scheme according to which they can select the investments according to their investment mentality.
Credit platforms also need to make money. Creditity fees range between 0.25% of the loan amount and 4.5%. These are without the borrowing rate and are based on the creditworthiness of the borrower and the loan term. Account opening and account management are free of charge, the dunning fees are 9 euros. Creditity deducts the loan fee automatically upon payment of the loan from the loan amount. This should be considered by borrowers in terms of loan amount.
Loans can be returned to Creditity at any time early or in full.
Acrossbank is the youngest member of the P2P credit platform family. The company was launched in 2015 by two former Kreditech managers. Acrossbank is located in Berlin.
The maturities at Acrossbank are 6, 12, 24, 36, 48 and 60 months. The loan amount can be between 1,500 euros minimum and a maximum of 30,000 euros. Subsequent to the loan request, the applicant goes through a scoring process that determines the conditions. The partner bank is biw AG. Depending on the credit rating, interest rates vary between nominal 2.12% and 14.3%. Effectively, this means an interest rate of 3.31 percent to 17 percent
The fees are based on the interest rate within a range of 0.5 percent to 5 percent. The fee will be deducted from the payout amount. The early loan repayment is at no additional cost. A return debit bills at eight euros, a reminder costs five euros.
trucredit is one of the veterans of P2P loans in Germany. The foundation took place in 2007. The headquarters of the platform is Dusseldorf. According to their own statements, trucredit has brokered more than 58,000 loans so far. The lending volume amounts to almost 350 million euros, distributed to approximately 50,000 investors. The market share is according to self-reported 76 percent (September 2015).
trucredit requires a minimum age of 18 years and a maximum age of 70 years to borrow. Basically, anyone who proves a permanent residence in Germany, can start a loan request with the Dusseldorf. Exceptions are persons with so-called hard negative characteristics. These include:
- Bankruptcy or pending proceedings
- arrest warrant
- Declaration of an oath
- Titular claims
The terms for a P2P loan with trucredit are between 12 and 60 months. An early return of the loan is possible at any time. However, the amount of the loan has trucredit limits. Loans smaller than 1,000 euros are just as impossible as loans of more than 25,000 euros.
Investors can choose between seven risk classes from AAA to E when choosing loans. The eighth risk class, scoring class X, requires a personal conversation with the loan seeker.
More about trucredit
- For borrowers: www.trucredit.de/kredit-aufnehmen
- For self-employed borrowers: www.trucredit.com/selbstaendige
- For investors: www.trucredit.com/investors
The brokerage fee at trucredit is 2.95 percent of the loan amount, regardless of term and credit rating. This is included in the monthly installment. The trustee, PAR Bank Bank, receives 2.50 euros per month for the account management and handling of the loan.
Investors pay one per cent of the deposit as a fee.
Creditend not only offers loans privately, but also provides interested parties with the offer of banks. Creditend was founded in 2007 in Berlin. Potential customers can apply for loans in the range of € 1,000 to € 75,000 via Creditend. The maturities can be arranged for bank loans over a period of between 12 and 144 months. For loans from private individuals and investors, however, only 36, 60 or 84 months and a maximum loan amount of 50,000 euros are available.
The loan projects are unlocked on the platform for 14 days. The denomination, both for the loan amount and the investment amount, will be in increments of 250 euros.
The platform grants its customers a Best Interest Rate Guarantee on loans up to 50,000 euros. If a borrower can prove that he would have received the same loan elsewhere cheaper, Creditend refunds the interest differential up to a maximum of 800 euros.
The contribution of a lender to Creditend must be at least 250 euros, but must not exceed 100,000 euros.
In the case of new customer advertising, Creditend has decided not to mess up, but to paddle. For each new customer advertising that leads to the payment of a loan, the referrer receives a whopping 100 euros.
The fees for borrowers are dependent on maturity at Creditend. They move from
- 2.5% of the loan amount for 36 months (at least 40 EUR)
- 3.0% of the loan amount for 60 months (at least 60 EUR)
- 3.0% of the loan amount for 84 months (at least 60 EUR)
For a bank statement, if requested, costs amount to 4 euros per quarter.
Investors pay a fee of 1.35 percent on the investment amount.
The company, which is based in Berlin and operates in Germany, Spain and the Netherlands, specializes in providing commercial loans. Funding Circle has been operating since March 2014. Depending on the target group, the minimum and maximum loan amount are also excluded. The lower limit is 10,000 euros, with a maximum of 250,000 euros being financed by the investor community. The terms are in a range of six to 60 months. Funding Circle differentiates between five credit rating levels, which are based on the respective interest rate.
Further infos about Funding Circle
- For borrowers: www.funding-circle.de/kredit
- For investors: www.funding-circle.de/anleger
The credit rating classes with the respective nominal interest rate:
- A + : 3.99% – 5.99%
- A : 4.48% – 6.80%
- B : 5.41% – 8.44%
- C : 7.30% – 11.91%
- C : – 11.32% – 15.64%
Unfortunately, the company does not show any examples of the annual percentage rate of charge on its homepage.
The prerequisite for a loan request is that the company has a balance sheet total of at least EUR 100,000, has been doing business for at least two years and has been accounted for in accordance with HGB. Funding Circle offers its borrower the option to serve up to two loans in parallel. As collateral for the loan a self-enforceable guarantee is usually sufficient.
For investors, there are the following return opportunities:
|Funding Circle class||interest rate||Investor return||probability of default|
|A||3.99% – 5.99%||2.99% – 4.99%||0.03% – 1.04%|
|B||4.48% – 6.80%||3.48% – 5.80%||1.04% – 2.03%|
|C||5.41% – 8.44%||4.41% – 7.44%||2.03% – 4.01%|
|C-||7.30% – 11.91%||6.30% – 10.91%||4.01% – 8.04%|
|C-||11.32% – 15.64%||10.32% – 14.64%||8.04% – 12.17%|
Funding Circle fees
The fees are based on Funding Circle only after the term of the loan and are payable once upon payment.
- 6 months: 1%
- 12 months: 2%
- 24 months: 3%
- 36 months: 4%
- 48/60 months: 4.5%