Loans between private individuals – why private loans are not advisable and borrowing through a bank is better

When money is needed at short notice, a loan from friends or relatives can seem like a good idea. Such a private loan can, however, prove problematic for both creditor and debtor, even if it is expected to be quick and unbureaucratic. For the following reasons we therefore advise against it and recommend taking out a loan with a bank instead.

Weaker loan terms:

With a private loan the lender is probably more willing to grant it at no interest or at a very low rate. They will, however, hardly agree to an amount or a term as high or as long as a bank would offer. Personal loans are currently available between € 3,000 and € 350,000, now with terms of up to 120 months. The shorter the repayment term, the higher the monthly instalment, which makes payment difficulties more likely. By contrast, a bank’s maximum term of 10 years allows a very low instalment. The term is also freely selectable and can later be changed via a refinancing, so the monthly instalment can be adapted flexibly to your needs.

No insurance:

When you take out a loan through a broker or a bank, cover in the event of death is included. You can also take out optional payment protection insurance so that, among other things, unexpected illness and unemployment are also covered by the insurer. This avoids repayment problems and does not harm your credit standing. A private loan does not offer this option, which in such an unexpected situation could cause payment difficulties for both parties.

Tax disadvantages:

After taking out a loan, interest payments can be deducted from tax. This is also possible with a private loan. However, only if a written contract is drawn up and proof of the interest payments exists. If you take out a loan through a bank, you will certainly receive the required interest certificate in time so that you can deduct the interest payments from tax without difficulty and save money.

Problems with repayment:

When you take out a loan through a bank or a broker, the terms and the repayment are set out clearly and in line with the law. Unlike a private loan, this also protects the borrower. If no repayment deadline was agreed for a private loan, the lender could terminate it at any time with six weeks’ notice, so that the borrower would suddenly have to repay the entire remaining amount by the end of that period. With a bank loan the contract states exactly how repayment is to take place. The borrower is therefore protected from such an abrupt repayment. This also avoids misunderstandings and the disputes that can arise from unclear terms when friends lend money to each other.

Risk for the lender:

Granting a private loan is a risk for the lender – especially if they themselves take out a bank loan in order to lend privately. If the private borrower then fails to pay the instalments as agreed and the lender cannot pay, the bank regards the lender as liable. That would also result in a SCHUFA entry, which would harm a later loan enquiry. By taking out a loan through a bank instead of a private loan, you therefore avoid exposing your relatives to such an unnecessary risk. In addition, the private loan cannot then be mistakenly treated as a concealed gift that the lender declared as a loan in order to avoid gift tax.

Our recommendation:

Private loans therefore involve risks for both creditor and debtor that can be avoided by borrowing through a bank. With a bank loan there is no ambiguity about the terms or the repayment, which also prevents disputes or any liability on the lender’s side. The borrower also enjoys greater protection when taking the loan through a bank. They can take out payment protection and do not, as with a private loan, run the risk that sudden repayment of the remaining amount could be demanded. The contract will also certainly be drawn up correctly and can therefore be used to deduct the interest payments from tax.

With a loan broker or a bank you will most likely also have more freedom regarding your loan terms than a relative could offer. At Mutuo Gruppe.de, for example, you can obtain loan amounts of up to € 350,000 with a term of between 6 and 120 months. The best approach is to combine the available amounts and terms with our loan calculator to determine your ideal instalment and apply for your personal loan on those terms directly.

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