The risk of private lenders

Private lenders fulfill their function in Spain as an alternative to traditional financing. However, before going to one it is necessary to know the risks and have advice. We discover what its dangers are.

When we think of a loan, we usually do it in banking terms. If we need money, we go to the bank or look for other options through comparators or rankings with the best loans by category, such as the ones we update every month from the blog. If these alternatives do not convince us or if they deny us the money, it is usually time to assess other alternatives such as fast loans and the like that are advertised so much lately on television and the Internet. Some want to go further and seek loans between individuals, for which there are already platforms such as Communicate. The problem is that not all loans between individuals are as clean as those of that platform.

The figure of the usurer is not new in Spain and some laws prevent usury and establish when a loan has such consideration. However, private lenders exist and will always be. The key at this point is knowing how to identify which ones to trust. In principle, there is nothing wrong with a person who does business by lending money, as long as he does so under the law and with reasonable conditions.

The problem is that many private loans are signed by people in dire financial circumstances who need the money at all costs. Private lenders know this and take advantage of it to achieve conditions that border on usury and even abound in it.

What rules govern loans between individuals?

The first thing to keep in mind when signing a loan of these characteristics is that as consumers we are protected by the law, which may place restrictions on the conditions of the loan itself. In this sense, loans from lenders to consumers are governed by Law 2/2009, of March 31, which nevertheless focuses on the contracts of private mortgage lenders, leaving out the rest of the cases. As well explained by Pau Monserrat, the problem is that in this type of loan and all those signed in Spain in general, the borrower will respond to the loan with all his present and future assets. In other words, even an unsecured private loan can lead to home foreclosure and foreclosure.

The Law also distinguishes between mortgage intermediaries, who are those who negotiate for the client with the bank or mediate between it and the financial institution in some way, and professional private lenders, who are the ones who effectively lend their money or that of third parties. The latter must be registered with the Consumer Institute, which registers private lenders and allows one to know if a person is a professional or an illegal usurper. The problem is that to this day this record of private lenders is still not published on the Consumer website.

Who should go to a private lender?

  • People who belong to the ASNEF delinquent lists, since no bank will lend itself to granting loans to clients on the delinquent list such as RAI or ASNEF.
  • People without payroll, because banks also do not grant loans to people who cannot justify income.
  • Those people who need the money urgently. If we need the money for the next few hours, going to private equity will be your best option, since lenders tend to be quick to grant them.
  • Those people who need to unify debts, joining them all, thus creating a new loan with two great advantages, since now we will have to pay a single installment and less money per month because the term is stretched.
  • Those who have been rejected by the bank for any other reason.

Are these types of loans worth it?

If there is something that defines the money of private lenders, it is that it is not cheap, quite the opposite. These types of loans have high-interest rates and additional conditions that it is usually not advisable to sign without a lawyer or a professional in the sector. However, the greatest risk is usually in the borrower himself, who asks for the loan. Due to optimism, necessity, or simple ignorance, many times the user thinks that he will be able to return the money when the loan sharks are usually more clear about whether or not this will be possible.

In addition, private lenders are regulated by the Bank of Spain and therefore, the client requesting those services is left helpless in the event of possible abuses by the entities. In addition, to lend them money they only require as documentation your ID number and the mortgage guarantee as collateral, meaning that if it is not possible to return the money, the lender can take it up for public auction. This is truly dangerous since people who are looking for this type of product are generally desperate and can sign anything to put an end to their bad financial situation.

The result is that loan sharks know that they will not return the money and therefore force additional guarantors to appear, who will also respond with all their assets in case of default, or they know that there is a home or that it will have to be foreclosed. This is, in fact, the greatest danger of these loans.

This is not to say that there are no situations where they can be useful as a last resort. If, for example, we plan to collect an inheritance and we do not have the capital to pay taxes, it may be a good idea to take out these loans until we receive the goods and liquidate them, then proceed to return the money.

There are certain associations such as Facua, which have openly manifested themselves in the face of the impunity with which these loan sharks act since they appear as individuals despite exercising the functions of a company. Thus, people who are looking for money to pay off debt can be affected by extremely high-interest rates, which can shoot up to 80%. There is no real limit for the guarantee (especially if it is intended for consumption), only if the loan is to acquire a home, in which case no more than 2.5% APR can be required.

We strongly recommend that you flee from private loan sharks if the situation allows it, using alternative services such as mini-credits that despite carrying high-interest rates, are legally regulated and are listed as registered companies. Currently, some entities offer free credits if the money is returned on time, which can help you greatly in the event of a non-payment. If we need a larger amount and our only option is private money, always go to your financial lawyer and leave a written record of any legal decision about any type of loan.

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