In the case of a payday loan, the borrower receives funds from a private person (i.e. not from a bank or other credit institution) to make a purchase, have an urgent repair carried out, etc.
People who can give such a private loan are:
- Relatives (e.g. parents, siblings, children)
- Friends or acquaintances (e.g. school friends, work colleagues, club friends)
- Crowdlending (e.g. via auxmoney, credit from private for private)
All lenders are “natural persons” and therefore do not count as “legal persons”, such as commercial banks. The legal requirement for payday loans (also called payday loans) can be found in Section 488 (1) BGB (German Civil Code).
The terms payday loan or payday loan are also used by banks, which describe a so-called consumer loan. These are usually granted for the purchase of consumer goods or the use of services.
Receiving a loan can benefit from a number of advantages that the bank does not offer for classic loans.
The main advantages with payday loans are:
- no Credit Bureau information necessary
- low or no interest
- longer terms can be agreed
- lower rates are possible
- less consequences for repayment difficulties
Lenders and borrowers cooperate on a private, trust-based loan, which makes agreements much more straightforward. The agreements are often limited, especially among relatives, and there are few or no written agreements. However, at least a rudimentary loan contract should also be drawn up for a private loan.
- In a contract for a payday loan, the contracting parties should at least record the amount of the loan and the modalities of repayment. The contract must also be signed by both parties. In this way there will be no misunderstandings later and each party will have the most important contractual content in writing in the event of a legal dispute.
The lender can provide security if he does not pay the loan amount to the borrower in cash, but transfers it to his account stating the intended use “loan” or “credit”. In this way, in addition to the loan agreement, he has additional proof that money has flowed and that the recipient owes him this amount.
If you want to secure the borrowed money for a payday loan despite a close relationship with the borrower, you can ask for security. For example, an existing vehicle could serve as such. However, this should then be written in the loan contract. Ideally, the vehicle owner should hand over the vehicle letter to the lender until the full repayment.