The new vanguard of personal loan is called social loan or social lending. What is this new credit system? What are the figures involved? What is the role of social lending companies? Who is it for? All the features and functioning of social lending and a focus on the current Italian situation.
Within the market there are forms of credit not subordinated to financial institutions, but managed and implemented between private individuals. Such is social lending or also called social lending (in the Anglo-Saxon world also known as peer-to-peer lending, abbreviated as P2P lending).
This form of private lending is based on a loan that takes place on the sites of social lending companies, avoiding traditional channels, usually represented by financial companies and banks.
WHAT IS THE SOCIAL LOAN? WHAT ARE THE CHARACTERISTICS?
The social loan is a form of self – financing implemented by the cooperatives towards the members members: the ultimate aim of this form of credit is to realize the corporate purpose. Through the equitable remuneration of the social loan, the spirit of social security and savings of the members is encouraged.
To provide a more detailed explanation of the social loan and clarify the nature of this credit form, specific characteristics and peculiarities are used.
The social loan is secure, as it is guaranteed by the social capital, accumulated reserves and real estate assets of the cooperative. It can also be defined as profitable, especially when compared to other forms of financing: the social loan, in fact, has a much more favorable interest rate than similar financial investments on the market. Its convenience also derives from the fact that it does not provide for any request commission: sometimes, however, for the maintenance of an account a flat-rate cost of maximum 5 $ per year is required.
Again, the social loan is convenient, as it allows the consumer to use the withdrawal services (total or partial), at any time, as well as to request the statement of account.
HOW DOES THE SOCIAL LOAN WORK?
The social loan can be classified as unfinished personal loans and represents one of the types of consumer credit; as such, the social loan does not provide guarantees aimed at protecting the lender against any risk of insolvency.
In the social lending relationship, both the figures involved in the loan contract receive a pay and a higher interest rate than the one proposed by the traditional bodies : this situation is possible because the intermediation costs are significantly reduced, since the subjects involved in the loan are placed in direct relation; in fact, the intermediary companies, operating on the web with automated services, can boast of clearly lower costs.
Each applicant is identified with a rating, that is a level of reliability : this classification is drawn up through a survey conducted between the archives of private central risk companies, in a manner entirely similar to what is done by banks and financial companies.
If the customer’s level of trustworthiness is very poor, the interest rates for the lender will be very high, such as to compensate for the risk.
In any case, the loan is disbursed after an accurate analysis of all online documentation, presented by the applicant. The amount of the credit share is contributed by various lenders with specific, fixed quotas and rates, based on the calculation of the weighted average of the rates requested by the individual lenders.
The repayment of the social loan takes place through a subdivision with monthly installments, debited directly to the bank account; it is then the task of the social lending intermediary to divide the installment between the lenders, according to the principal amount and the interest share due to them. In the case of default, it is the same intermediary company that is activated as representatives of all the lenders involved in forwarding credit recovery programs.
The figures of the lenders participate in the loan, offering the money according to one of the methods proposed by the intermediary; a sort of auction is carried out in which the lenders compete among themselves to participate in the loan established by the intermediary.
The lender chooses the types of risk and diversifies the investment, dividing the sum among the various applicants. Furthermore, the social lending platforms allow to activate a sort of secondary market, in order to allow the lenders, in case of need, to return quickly from the investment, assigning their credits to other lenders.
The lender and the applicant enter into a distance contract through the social lending company: in this way, the applicant acknowledges the debtor of various lenders.
WHAT ARE SOCIAL LENDING COMPANIES? WHAT IS THEIR ROLE?
The social lending companies represent for-profit companies, which generate their turnover from the share received by the applicants, at the time of disbursement of the loan, and one perceived by the lenders, based on a percentage and on the interests of the interests.
In particular, social lending companies become intermediaries and perform the following operations:
- provide an online platform that combines applicants’ loan requests with offers from lenders;
- develop models and credit grids to accept applicants and pricing;
- they verify the identity of the applicant, therefore the bank account, the economic activity and the income;
- verify the creditworthiness of the applicant, through a research carried out between the plants;
- manage all payment flows;
- assist applicants throughout the duration of the loan;
- ensure compliance with current regulations;
- they activate marketing actions in order to search for new lenders and new applicants.
In the event that the social lending company declares bankruptcy, the money of the lenders is protected by the actions of the creditors and the remaining repayment continues under the bankruptcy procedure.
SOCIAL LOAN: WHICH IS THE PRESENT ITALIAN SITUATION?
In Italy, the new social loan service has allowed for the approval of as many as forty-three requests for financing, only in the Arezzo area, for an amount of $ 75,000. In the Casentino socio-medical district, on the other hand, the applications presented and approved were thirteen, for a total of $ 24,200 disbursed.
Calling for numbers, the families that received this loan committed themselves to follow ad hoc projects, in order to promote stability and social reintegration.