There are two ways of lending by private individuals. The borrower can approach people he knows and ask for a loan. Furthermore, there is the possibility to organize private loans through websites operated by licensed banks.
Loans from relatives and acquaintances
Inquiring to acquaintances and relatives is the traditional way of taking out loans directly from private individuals. A special form of lending is not mandatory in this case, rather helping out with a small amount of money at the supermarket checkout or in a restaurant is a loan.
In the case of larger loan amounts, it is also sensible to conclude a loan agreement with clear repayment rules between friends and relatives. If reform recipients obtain loans directly from private individuals, the recipient must demonstrate to the job center that this is not a monetary gift. In contrast to gifts, loans to be repaid are not counted towards the entitlement to benefits.
If the borrower demands interest on a personal loan to friends or relatives, he must state the corresponding income in the tax return. In the case of personal loans agreed directly between the giver and the recipient, the waiver of the interest payment is more common than the interest calculation.
Loans provided by private individuals via internet platforms
For Germany, the legal provisions rule out that organized loans are paid out directly by private individuals. In order that lending between private lenders and private borrowers is still possible, several licensed commercial banks have set up internet platforms for personal loan brokerage. In the perception of those involved, they take out the loans directly from private individuals, especially since they decide on lending in each individual case.
In contrast to bank loans, on the brokerage platforms for personal loans, the loan applicants specify the purpose for which they need the money requested. For smaller loan amounts, a single private lender provides the entire amount, while larger amounts requested are serviced jointly by several lenders. As the operator of the platform, the bank pays the subscribed loan to the applicant. At the same time, it pays the repayment installments so that borrowers and lenders do not have to exchange their data with each other.
The interest earned on the brokered private lending is subject to the flat-rate withholding tax and will be retained by the bank as the platform operator unless the private lender issues an exemption order. Borrowers can borrow directly from individuals through the relevant platforms, even for low amounts, while most commercial banks require relatively high minimum loan amounts.
A weak credit rating does not necessarily preclude private borrowing, especially since many private lenders are guided by social criteria when making their loan decisions. In addition to the reason for the borrowing, the loan applicant also provides essential data regarding his credit rating.