Loan between individuals: how does it work?

As everyone knows, we are beginning to emerge from a global crisis caused by the COVID-19 pandemic. Because of this, peer-to-peer lending has become a reality.

In addition to claiming nearly 600,000 lives in Brazil alone, the virus also caused a global economic crisis. This led to more and more people seeking alternative credit options to cope with this difficult time, or even to deal with debts that arose during the pandemic.

However, due to high interest rates and bureaucracy, customers are facing increasing obstacles in obtaining this line of credit. This has led to peer-to-peer lending gaining traction during the pandemic, becoming a good option for those who cannot – or do not want to – resort to conventional loans.

What is peer-to-peer lending?

As the name itself suggests, this type of loan occurs when someone (an individual) lends a certain amount of money to another person (also an individual).

Although not a new practice – as it has always existed, albeit informally – lending money between individuals now relies on SEPs (Peer-to-Peer Lending Companies), making the transaction safer for both lenders and borrowers.

How does peer-to-peer lending work?

Peer-to-peer lending companies (P2Ps) act as intermediaries in this business model, making this type of financial transaction possible.

Also called peer-to-peer lending, the company responsible acts as an intermediary, mediating the entire negotiation. At Bulla, the leading fintech company in this modality, the amounts available for loans range from R$ 1,000 to R$ 4,000.

Payment can be made in 10 to 18 monthly installments. After the transaction is formalized, a payment slip is generated for the investor to pay the requested amount.

The money is only deposited into the loan applicant's account after payment. Loan installment payments follow the same pattern.

Bulla's pioneering spirit

Present in the market since 2018, the fintech company is one of the main pioneers in this segment. In addition to being the first SEP (Peer-to-Peer Lending Company) approved by the central bank, the company has gained strength in the last two years.

From January to August 2021, the company has already brokered approximately R$ 5 million loans, a growth of more than 200% compared to the figures for the year 2020 (R$ 1.5 million from January to December).

Regarding interest rates, average rates are around 3.6% per month (52.9% per year). Although this number is quite similar to the interest rates currently applied in the market, they start at 1.5% per month (19.6% per year), a percentage well below the average interest rates for personal loans in the country (around 32.7% per year).

Interest rates decrease according to the credit rating assigned by the company to those requesting a loan.

The company uses a system to classify customers from A to D, based on an algorithm that considers the customer's payment history and calculates the risk of default at the time of registration.

Therefore, the higher the rating, the lower the interest rates offered to that customer.

Is it a safe option for both the customer and the lender?

In addition to acting as an intermediary, Bulla also offers investors the option to chat with the platform. This helps make the transaction more secure and transparent, as investors have the opportunity to choose who to lend their money to.

Another tool used by the platform is credit analysis for new users. To register, a quick analysis of the CPF (Brazilian individual taxpayer registration number) provided by the customer is performed.

If there are any outstanding debts and/or disputes with the responsible authorities associated with the client's CPF (Brazilian individual taxpayer registration number), the client will not receive the necessary authorization to participate in the platform.

This is one of the ways the company uses to keep the default rate low.

Is it a legalized form of credit?

This may be one of the main concerns of those who are not yet familiar with the platform. Unlike the popular – but very rarely recommended – “loan sharks”, this modality has been regulated by the Central Bank since 2018, making the 100% transaction legal.

What are the main advantages of this line of credit?

The number of people opting for this type of loan is steadily increasing. This is due to advantages such as:

– Lower interest rates: Compared to more traditional loan options on the market, the lower interest rates are perhaps the main attraction of this model.

Less bureaucracy: Only those who have already applied for a loan know all the bureaucracy involved. Since the entire procedure is carried out directly through the platform, this makes the transaction much less bureaucratic.

– Better returns: If your goal is to invest by lending money, this option is a great way to invest, resulting in a more profitable return than other forms of investment.

Conclusion

As you can see, peer-to-peer lending is still a relatively unknown type of loan, but it's gaining increasing popularity among the general public.

Being a great alternative for those seeking a loan but wanting to avoid the interest rates and bureaucracy present in traditional financial institutions, this type of credit can be an excellent solution.

For those who have some money available and want to diversify their investments, this can be a great way to start. In both cases, the advice is: research and compare the available options.

This way, you'll be able to find the best option for you and your finances.