On the advertisement portals you can find many loan offers from private persons. At first glance, this form seems to be an interesting alternative to loan companies’ proposals. Is it really so? Although both types of transactions are a form of non-bank loans, there are fundamental differences between them. In the case of a loan company, there are very transparent rules. On the other hand, a loan from a private individual may raise legitimate concerns and is fraught with risk.
What threatens a person taking a private loan?
A private loan agreement is concluded between two private individuals, not between an individual and a company. What is the conclusion? If the lender exposes us to loss or behaves unfairly, we cannot appeal to the Office of Competition and Consumer Protection. An injured person can only bring a case to court. In most cases, these types of trials are not criminal but civil.
Pursuant to the letter of the law, any loan exceeding USD 500 should be confirmed in writing. Such a document should be understandable by both parties. The biggest threat to borrowers who apply for private loans is inaccurate reading of the contract or allowing us to sign a document read to us by someone else. It may happen then that the person reading it will skip selected elements of it. Therefore, the basic thing is to carefully and thoroughly read the contract. It must contain all the conditions for the commitment. Of course, the most important thing is the provision about the amount of funds available, time of issue of money, interest rate, additional fees, collateral and date of return.
Unfortunately, you also have to reckon with the fact that a person granting a private loan may prove to be a criminal preying on the borrower’s difficult situation. It is possible that a private lender will expose us to huge costs and property losses. What is worse, it happens that persons conducting this type of activity use physical violence against persons who have been granted a loan. This is a huge risk not only for the person making such a commitment, but also for his family. The problem is that there is no way to check whether the lender you choose will act legally or not. The first contacts regarding a private loan and the signing of the contract usually take place in a very pleasant atmosphere. Problems start much later when paying off the debt.
Private loans secured by
If you decide on a private loan against an item, all its parameters and value must be included in the contract. The fact of transferring the pledge and information that any storage costs are borne by the lender should also be noted in the document. Real estate may also be a pledge.
If you sign a loan agreement, pay special attention to its content. There is a risk that instead of a loan agreement, you will actually sign a sale or transfer agreement. The expropriation consists in the debtor’s transfer of ownership to the creditor until the liability is repaid. The document may also mention that the borrower agrees to the application of Article 777 of the Code of Civil Procedure. This seemingly innocent entry can cost you a lot of trouble. This is especially dangerous when you borrow money against your apartment.
Private loan – money in hand or on account?
If you have the option of a loan in the form of cash or transfer, it is better to choose the latter option. This way you will have proof of the amount the lender has transferred to you. You will also be able to prove when exactly and in what amount you refunded. However, if you prefer to receive cash, always remember to acknowledge the transfer of any amount.
Why is a transfer a safer way to transfer money? The receipt may be lost or destroyed. You can also accidentally or intentionally enter incorrect data on the document. A bank transfer will always be irrefutable proof of the amount transferred and the date of the money transfer. This is especially important if you run into a dishonest lender.
Remember that the contract must include information on the form of transfer of money. In the case of a transfer, it is also necessary to enter the account numbers in it. This will prevent the lender from trying to cheat by declaring that the money has not been transferred because you provided the wrong number.
Private loans and non-bank loans offered by the company
Private lenders are often tempted by good terms and simple rules. Unfortunately, when choosing this form of loan, we must ensure that the whole procedure is correct. It is worth considering whether the conditions offered to us are more favorable than in a professional loan company. It’s best to count and compare both offers yourself. Many loan companies provide their new clients the opportunity to take advantage of various interesting offers, such as taking the first loan for free. A private lender will not be able to offer this type of promotion.
Taxes are another problem associated with private loans. If you take a loan from a company, you don’t have to pay tax. On the other hand, loans granted by natural persons who do not conduct business activity depending on the amounts may be taxable. The burden of paying the fee to the tax office is always on the borrower. It is worth knowing that if, in the case of a fiscal audit, the borrower admits to taking a loan he did not apply for, then he will have to pay 20% of its value.
Good companies offering non-bank loans are associated in the Association of Loan Companies. To join this association, a company must meet very high business and ethical standards. They are thoroughly verified during a multi-stage process. Belonging to the Association of Loan Companies is a guarantee of a high level of services provided by the company. There is currently no similar institution for private lenders. Therefore, using their services will always be subject to a certain degree of risk. If you use the services of proven loan companies, you do not have to be afraid of situations such as an improperly constructed contract, the risk of unexpected loss of property or other pledge. The loan repayment time and its cost can be clearly determined thanks to the calculator available on the loan company’s website.