When you need money fast, a social or private loan can look like a shortcut. Sometimes it is – but understand how it works and what the risk is before you sign.
What is a social loan?
In a social (P2P) loan, private individuals lend money to other people through digital platforms. It's not a bank – it's an arena where lenders and borrowers meet, and everyone chooses whether and how to take part.
What is a private loan?
A private loan can come from people close to you – family or friends – or from non-bank credit companies. The terms are usually more personal: sometimes interest-free, sometimes with high interest – depending on the agreement.
How does it work?
- 1
The borrower applies
They present their need and details – purpose, amount and period.
- 2
Lenders decide
Each lender reviews the request and decides whether to invest, and how much.
- 3
Interest and terms are set
The interest usually varies with the borrower's credit rating and the type of loan.
- 4
Repayment follows the agreement
Repayments go through the system, and it's wise to make sure every step is clearly documented.
Advantages?
What works for you
- You can get money quickly, without all the bank bureaucracy
- The terms are more flexible, sometimes with no guarantors needed
- There's a sense of trust when the loan comes from someone who knows you
What to watch
- Not necessarily supervised like a bank – the terms are on you
- High interest can make a small loan expensive
- A loan from people close to you can strain the relationship if something goes wrong
The best way to depend less on emergency loans is an emergency fund. With a cushion of a few months of expenses, you are less likely to take a loan on bad terms. See what that looks like for you:
Open as a full calculator: Emergency fund calculator
A side-by-side look: bank, social loan and private loan
And what are the risks?
Clear terms, preferably in writing
Because there is not always regulation like in a bank, make sure the terms are clear and both sides understand what they sign. If it is a private person, have a written agreement to avoid unpleasantness later.
What happens if you miss a payment?
Payment day
The payment doesn't go through
Get in touch right away, before the delay starts to add up.
A few days later
Late interest or fees
As the agreement states – you can, and should, read it beforehand.
Later
Collection
With a regulated provider the process is orderly; with a private loan it follows the agreement and the law.
Before you sign a loan
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How to compare loans: total cost, not only the rate
A low rate on paper can hide fees, indexation and other terms. To compare properly, ask each lender for the same data and work out the total that will be paid. The simple comparison is how much will be paid in all beyond the principal, and in which months.
What to ask each lender
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Red flags
- A demand to pay a fee up front before you receive any money.
- No written agreement, or terms that change verbally.
- Pressure to decide fast, or a promise of approval without a check.
- A lender you cannot identify or find registered anywhere.
- Interest or indexation that is not clearly explained.
Before you borrow: three questions
- 1
Does the repayment fit the budget?
Work out the monthly repayment against income and fixed costs. The family budget guide shows how.
- 2
Is there a cheaper alternative?
Consider a bank loan, drawing on an emergency fund or spreading the expense.
- 3
What if income is hit?
Check whether there is flexibility in payment, and the cost of falling behind. A small emergency fund lowers the risk, see Emergency fund.
Loans to friends and family
When you lend to a relative, document the amount, the repayment dates and whether there is interest. A written agreement prevents misunderstandings and protects the relationship. If the sum is significant, consider speaking to a lawyer.
An arithmetic example comparing cost
The example is made up and is only to show the method; the numbers are not any real lender's interest. Suppose two offers for a ₪20,000 loan over 24 months. In offer A the monthly repayment is ₪900, and in offer B it is ₪880 with an opening fee of ₪600. In offer A you pay 900 × 24 = ₪21,600 in all. In offer B you pay 880 × 24 + 600 = ₪21,720. The offer with the lower monthly repayment is in fact the more expensive. So compare the total, not the monthly repayment.
What a loan agreement should contain
A checklist for the agreement
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What to do when repayment is hard
- 1
Act early
Contact the lender before you fall behind, not after. Many lenders prefer an arrangement to arrears.
- 2
Ask for an arrangement in writing
A rescheduling or a deferral, with clear terms documented in writing.
- 3
Check the budget
See whether you can cut spending or raise income, following the family budget guide.
- 4
Ask for advice
Debt-support organisations can help, and with large debts consider speaking to a lawyer.
Guarantors and collateral: what it means for you
Many loans ask for guarantors or collateral. A guarantor undertakes to repay the debt if the borrower does not, so it is a heavy commitment that should not be given lightly. Collateral, such as a charge over an asset, lets the lender collect from it if there is no repayment. Before signing as a guarantor, or when you put up collateral, check the full amount that could fall on you, and what happens if the borrower disappears. This is a decision to discuss with a lawyer.
When you borrow
- Understand every cost before you sign.
- Know what may happen if you pay late.
- Make sure there is no one-sided right to change the interest.
When you lend
- Decide how much you are willing to lose if it is not repaid.
- Document everything in writing, even between relatives.
- Check the borrower's ability to repay, not only the willingness.
How to prepare for a conversation with a lender
Before the call
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How to read a repayment schedule, and indexed versus non-indexed
Before signing, ask for a repayment schedule and check four things in it:
- The split of each payment into principal and interest. In the first payments a large share is interest.
- Whether the loan is linked to the consumer price index. In an indexed loan the principal rises with the index, so total repayment may be higher than the amount in the schedule.
- Whether the rate is fixed or variable, and what drives the change.
- Fees: opening, management and early repayment. Ask what it costs to close the loan early.
When comparing two offers, compare the total of all payments over the life of the loan, not the monthly payment. A low monthly payment can hide a longer term and a higher total cost.
If the lender is someone you know, write an agreement anyway: the amount, the repayment dates and the interest, if any. A written agreement protects both sides and protects the relationship.
Frequently asked questions
No. It's a loan between people through a platform. The terms and supervision differ from a bank loan, so read the agreement carefully.
You can, but treat it seriously: agree an amount, repayment dates and a written summary. Above all, lend only an amount you can manage without.
By total repayment and effective interest, not only the monthly payment. A low monthly payment can hide a long period and a high cost.
Compare the total cost: the amount actually received, interest, indexation, fees and a repayment schedule with the total that will be paid, not just the quoted rate.
A demand to pay up front, no written agreement, pressure to decide fast, a lender you cannot identify and interest or indexation that is not explained.
A guarantor undertakes to repay the debt if the borrower does not, so it is a heavy commitment. Before signing, check the full amount and consult a lawyer.
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