Social loans - rules, advantages and threats

There is a sudden major expense, you need a loan - and what? If you do not have a wealthy savings account, one alternative is to approach relatives and friends. But what if they too are unable to help us? Then you can decide on a loan from a stranger - as part of social loans.

Social lending - social loans

The mechanism of social loans - also known as social loans or social lending in English - is not yet common in Poland. Nevertheless, there is a group of people - quite numerous in general - who are interested in this type of transaction. What is a social loan?

There are two ways to get involved in the social loan mechanism - either as borrowers or as investors. Both groups meet with each other on special internet portals that act as intermediaries and administrators. The pioneer of such portals was the British ZOPA - Zone of Possible Agreement. The first websites arrived in Poland in 2008 and since then they have been a competitive offer for official loan institutions.

How does social lending work?

To take advantage of a social loan, first of all, you need to find a suitable, specialized portal. In Poland, Kokos.pl is the most popular (according to the statistics on the website, almost 50,000 loans have been granted within six years of operation).

When a borrower registers on the portal, he should first of all enter a description of the investment for which additional cash is needed. Contrary to serious institutions, in this case, the need can be easily indicated, for example, a desire to buy a game console - after all, there is a chance that you will find a similar fanatic who will understand this irresistible and sudden need. On the other hand, borrowers often indicate a willingness to invest, build a company or develop an already existing one. So when it comes to the purpose of the social loan, there are actually no limits here.

Investors also register in the portal - people who have a certain surplus of cash, who would like to support others and earn some money from this business. Investors on the website choose who they want to support. Importantly, it is not necessary for one investor to cover the entire amount requested by the borrower. In practice, investors tend to propose smaller sums, from which the entire investment value is collected. In this respect, a social loan is similar to crowdfunding.

A social loan is - as in standard financial institutions - granted for a specific period and interest. It is this percentage that earns the investor, as well as the portal itself, which charges a specific commission for each transaction. A big advantage of such a loan is the fact that, unlike loans and

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bank loans, no one here requires checking creditworthiness, presenting a bank statement or tracking BIK. This is where the question often arises - what is the risk then, and what is the protection? After all, social loans, even for small amounts, are still money trading.

Social loans - risk and protection

The risk of using the social loan mechanism obviously exists - small for the borrower, greater for the investor. The borrower is usually protected by a social loan agreement, which protects him against unfair changes in interest rates, sudden early repayment requirements, etc.

In the case of investors, things are a bit worse - after all, they lend money to strangers, with no repayment guarantee. At this point, the intermediary portal and its mechanisms for checking the credibility of the pages play an important role. Not every administrator chooses the same form. The most popular methods are identity control of registering users, cooperation with the National Debt Register or debt collection offices. Investors are also offered guarantees which, in the event of problems, cover part or all of the amount borrowed.

A social loan is a good idea to solve temporary financial bottlenecks. It can support our business, open the way to a new car or tropical holidays.