Private individuals cannot always easily borrow money from the bank. Anyone who cannot borrow money from their bank and does not have a rich godmother has been able to borrow directly from private individuals online for some time now. They, in turn, lend money to make money, just like banks do.
Borrow money through credit exchanges on the internet
Borrowing money from private individuals has always existed. Borrowing money from family or friends used to be very common. But unfortunately that did not always go smoothly. Online marketplaces now want to better organize credits between private individuals: beneficial for borrowers, lucrative for investors. The phenomenon of ” social lending ” has existed in our eastern neighbors for about 3 years .
How does borrowing or lending money work on the internet?
Social lending is no longer anything new. Various providers work online with different concepts to mediate loans between private individuals. But how does borrowing or lending money work on the internet? The first option for private online credit emerged years ago in Great Britain. And private loans on the Internet have also quickly established themselves as a market in the United States. Websites such as the British Zopa.com and Prosper.com in the United States started their business with private loans as early as 2005, followed by providers in several other countries. But these international online credit marketplaces were not accessible to loan seekers and investors in the Netherlands and Germany. After all, the parties to those credit transactions also had to reside in the country in question.
Smava and Auxmoney
For about three years now, it has also been possible to lend money to private individuals on German internet portals or to borrow the necessary capital from others for various purposes. The largest providers in Germany are Smava and Auxmoney. Both operate without a banking license because they act exclusively as intermediaries of monetary transactions. Instead, they work with a recognized banking institution. Smava.de, based in Berlin, mediates its private loans in collaboration with the “Bank für Investments und WertvuurA AG (biw AG), while the Düsseldorf-based Auxmoney has been working with the Süd-West-Kreditbank, or SWK-bank for short, since 2008.
Credit from person to person
The social aspect is an important new element compared to traditional lending. The money is not borrowed from an “anonymous” institution, but from a person. As a rule, this does not involve exceptionally high amounts, but a maximum of several thousand to tens of thousands of euros. The borrowed money is not used to build an entire house, but perhaps to renovate the living room, finance a wedding or pay off an expensive overdraft. This makes ” peer-to-peer lending ” (P2P), as they are also called, comparable to micro-credit in Asia or Latin America, an instrument arising from development aid. Even with smaller amounts of money you can help other people to realize important projects for them. The private lender can inform in advance what its money will be used for. Because the loan seeker accurately describes his project on the online marketplace, he can not only gain an investor’s attention for his financing project, but also his sympathy. For example, a motorcycle enthusiast is more likely to help a “biker” with a loan who wants to embark on an adventurous trip than a baker who wants to buy a new kneading machine. Provided, of course, that the financial conditions are also correct. In principle, Smava and Auxmoney are comparable institutions in terms of operation, but there are also differences.