Originally, the loan was community Understood to mean an association of lenders who collectively collect the sum is the loan muster. These are usually large loan sums. So great that they are often not available for lender alone or at high risk. In such a form of community loan, the individual banks must be combined in a GbR.
This contrasts with community loans that define themselves as having a borrowing community . Also this form of “money lending” is mostly settled rather in the business environment. Increasingly, the term is also used in the field of personal loans. And that’s when several private individuals take out a loan. As a rule, these are spouses. But also homeowners can form loan syndicates.
The benefits of a community loan
Similar to an association of lenders, borrowers also share risks and obligations through the community. That is, they share the responsibility and the repayment amount in half each with each other. Banks often grant a joint loan at more favorable terms. Because of them, the default risk for two borrowers is reduced by 50 percent. So if you get together for a personal loan or real estate financing , you will not only be able to approve the application, but will often be offered even better terms.
When a community loan makes sense
There are several scenarios in which community credit can be beneficial to borrowers.
- If the loan amount is particularly high, it can be a relief for the individual parties to spread the loan debt among several people.
- If one of the Community borrowers has a bad credit rating, he or she may team up with a second person to increase their creditworthiness.
- If a single credit applicant does not have sufficient collateral (securities, equity, guarantees, etc.), a Community loan may facilitate the grant.
- If investments are due in a condominium community, borrowers as a syndicate can borrow more money at lower risk and better terms.
The idea behind a joint loan is – regardless of whether from a lender or borrower perspective – always the risk minimization. The bank reduces the risk of defaults . The borrower reduces the risk that the loan becomes financial overload. When concluding a joint loan, it is important to ensure that the liabilities are divided equally between all borrowing parties.