Once upon a time the Bank. His job was to collect people’s savings, secure them and use them to give credit to those in need.
In this way, everyone could make money.
In the phase of stable economic growth (second half of the 80s and 90s), many citizens and businesses have benefited from it. But the financial system, meanwhile, evolved towards a proliferation of financial derivative products that increasingly alienated the financial world from the real economy: everything became increasingly complex and sophisticated. Thanks also to the short-term return target (many banks are listed on the stock exchange), the Bank forgot about its social function.
Yes, the role of the bank has changed compared to the past: now, banking institutions prefer to focus on safe forms of financing , which involve a low risk, for example by financing large companies to the detriment of small and medium-sized businesses (which often and willingly they must depend on the financing of the members).
A product favored by the bank, in recent years, is certainly the mortgage, which is required for substantial sums (up to 80% of the value of the property) and for long periods. As in any type of financing, the applicant must demonstrate that he has the income capacity to return capital and interest and, at the same time, provide a real guarantee. Here is the mortgage , which does not refer only to the sum loaned by the bank but to the entire value of the property: if the debtor were to become insolvent for a prolonged period of time, the bank may in fact also take possession of the house. A good guarantee, therefore, that makes the mortgage a particularly safe financial product for the lender : the slowness of changes in the value of the real estate market, together with that 20% of the value of the property that the bank has not lent to the applicant, they represent fairly solid guarantees for the bank.
Things are very different in the case of personal loans , where the amounts are quite low and the periods within which to repay the money are short. In this case, what are the guarantees for the banks in the event of a possible insolvency on the part of the debtor? The credit history and the paycheck , which today, unfortunately, no longer have the stability of the past. This entails a greater risk for the banks, and that is why the interest rates of personal loans are higher than those of mortgages. With reference to the data from the Quarterly Anti – usury Detection (October-December 2017) released by the Bank of Italy, fixed-rate mortgages have a Average Global Real Interest Rate (TEGM) of 2.91 (2.45 variable-rate ones), while the TEGM of personal loans is 10.23: this important difference is motivated precisely by the fact that, with personal loans, banks are involved much more than mortgages.
The new era of social lending
Is it possible to obtain a personal loan with advantageous interest rates for the applicant? Yes, but we need to look for different interlocutors from banking institutions, which have maintained the social function of the bank of the past. Same purpose, but different methods and tools. These new interlocutors are the social lending platforms.
In the social lending (or peer-to-peer loan) the protagonists are three: the applicant , who requests the loan because he needs liquidity, the lender , a private entity that invests its savings by making them available to many different applicants, and an Internet platform through which the meeting between lender and applicant takes place. A digital solution, therefore. And it is thanks to technology that interest rates are lower than those offered by banks , because brokerage costs are lowered . But the benefits are not only for those who request the loan: even the private who provides their savings can get a good profit.
In order for this model of ethical finance to work, however, it is necessary for the borrower to respect his commitments and return the sum loaned according to the agreed modalities : only in this way can both parties be protected. Social lending does not mean social credit. It is precisely for this reason that, to establish the reliability of an applicant and decide whether to grant him a loan, P2P platforms still refer to his creditworthiness, which is also functional in setting interest rates, which must guarantee a minimum return cost-effective for lenders after any insolvency. In some cases, “owl” rates are initially proposed, ie very low, because it is possible that at a later stage other products are offered with much higher rates ( revolving cards , for example).
Social lending has succeeded in restoring the social role that once belonged to the banks , giving the opportunity to those who need small amounts to request a loan peacefully and have immediate liquidity. It is a new model of ethical finance, it is a new idea of progress. You also take part in the change: apply online to apply for a Smartika loan and find out if you are eligible.