Whoever lends or receives a loan privately should by no means renounce signing a private loan agreement. This regulates the basic conditions of the lending for both parties. With a suitable sample contract as a basis for a private loan, it is possible to set the individual conditions. In addition, there are more things to consider to secure the private loan.
Private loan contract: the most important thing in a nutshell
- Once the contract has been drawn up, two signed copies should be in their original form. Both the lender and the borrower keep a copy.
- Depending on the lender’s financial capabilities and the level of the loan, consideration should be given to working with security. This can be in the form of a security transfer as well as in a security assignment.
- If a notarial acknowledgment of debt is issued, it is possible in the absence of payments to initiate foreclosure without high court costs.
Lend money in the private sphere
Who lends money to friends or within the family, can put himself in a difficult position. Because if it comes to the fact that the sum is not paid in time or not at all, this can lead to great trouble. If a loan contract is used privately, this hassle can be significantly minimized.
Without a valid private loan contract you should not lend money among friends and family. Without contract better friendly but definitely refuse. (#1)
Whether your best friend or your own sister, who gives larger sums of money, should necessarily consider this transaction as a business. If it comes only to a friendly handshake, then this can lead to unnecessary problems in an emergency. This attitude also helps to see the problem rationally and not emotionally in the absence of payments – a good way to maintain your personal relationship beyond the loan.
What information is part of a private loan agreement
It is important to determine in which amount the loan is granted. For this, both parties should think carefully about what is possible. How much money is actually needed? How much money can you lend without causing financial shortages later on? Ideally, the borrower can completely dispense with the capital and is in no way dependent on it. In principle, it applies to the borrower that a lower sum can be paid off more quickly.
The duration of the loan should also be defined. So it is clear to both parties, over which period the money is to be repaid. In this context, a possible termination of the loan should also be agreed. The legal notice period for financial products of this kind is three months. Of course it is possible to adjust the termination according to your own wishes. For example, a clause that allows the borrower to settle the outstanding capital with a payment should he unexpectedly secure the necessary finances.
For the determination of the interest rate and the interest conditions it makes sense to follow the current market situation. Interest may be levied on the installment payments or attached at the end of installment payments.
Define all the important points in a private loan agreement: loan amount, loan period and do not forget the interest amount. (# 2)
If the interest rate is well above the normal market value, the tax office can classify the high interest rates as so-called donations. This results in a high tax burden which may negate any possible gain on the loan.
The nature of the repayment records the rates at which the loan is repaid. The classic choice for the conditions for this are the monthly installments. However, it is also possible to adjust the loan agreement privately so that it corresponds to the specific payment options of the borrower – for example a repayment at the time of a professional bonus payment.
If there are late payments, the contractually agreed default conditions come into effect. These usually define the amount of default interest. In this area too, it is important to follow the general rules. For default interest, there are bills that should be observed privately for a loan agreement. They are calculated according to the base interest rate of the Bundesbank. The annual default interest is five percentage points above.
Pay attention to the private loan at a market interest rate, otherwise the tax office could start from a donation and that should be avoided. (# 3)
Although it is not advisable to award a private loan that could lead to financial problems in the event of loss, it is of course possible to settle large loan amounts privately via a loan agreement. This is where collateral is best used. Such collateral can be arranged in various forms:
- Security transfer
- security assignment
If the mortgage is registered for a property, this must be done via a notary. These costs are usually integrated into the loan amount. In order to have fast and unhindered access to the backups in case of emergency, a notarial acknowledgment of guilt is important. If this is issued with a so-called enforcement submission, it is not necessary for the lender to initiate legal proceedings for foreclosure. Again, there are extra costs for the notary, which are included in the loan amount.
What collateral is privately possible for a loan agreement?
The topic of collateral is enormously complex. This is no different for a loan agreement that was concluded privately. A popular option for private lending is the transfer of ownership. The borrower transfers ownership of certain items to the lender in case of default. These items should roughly correspond to the equivalent of the loan:
Ownership rights only come into play if the payments for the loan are not made on time. If this case does not occur, the security remains in the possession of the borrower. The ownership of the borrower expires with the repayment of the loan.
Objects as collateral for a private loan agreement should as far as possible be avoided. In any case, they should be the equivalent of the loan. (# 4)
What is a private loan for?
The reasons for borrowing from a private borrower are manifold. Often, however, there are financial hardships that cause a friend or family member to ask for money. But buying luxury goods like a high-priced TV or a car can also be a reason to take out the loan.
It does not always mean that the borrower can not finance the money through a bank. In some cases, the borrower feels safer to settle his money with a known person. The borrower can use the opportunity to make a profit.
Who can award a private loan?
There are no legal regulations for lending to friends and relatives. If the money is provided without interest, the lending of money is unlimited. If the loan contract is used privately, this primarily serves the individual securing and regulation of the loan.
If it becomes apparent that the lender regularly receives income from interest-bearing loan agreements, this must be reported as a trade. Accordingly, special taxes apply to the transactions.
Borrowers are always free to conclude a loan contract privately. There is no bond with financial institutions, regardless of the amount of the loan.
Before each private loan, a loan agreement should be signed. If in doubt, a sample helps them. (# 5)
How are the interest rates for the loan agreement set?
As mentioned above, interest rates should be based on current bank rates. Bank interest rates, in turn, are based on the key interest rate. This is set for the German-speaking countries via the European Central Bank.
Banks handle their in-house transactions through the central bank. Providing banks with a low interest rate on these transactions saves banks money. This savings, in turn, is allocated to the consumer products of the banks. Low interest rates are designed to boost the economy – if more people can afford to borrow, more money will be spent.
If you are unsure about the interest rate at which bank loans are currently being granted, you should contact a bank adviser.
How is the loan agreement terminated privately?
Ideally, the conditions for a termination in the loan agreement are regulated privately. In order to be able to apply for termination, a term must be contractually stipulated. If this is not the case, the termination is regulated by law. The legislator sets a notice period of three months. If the termination is filed, the entire outstanding amount must be repaid within this time.
If the loan contract is concluded privately and without interest, it is not necessary to work with a notice. If the borrower has enough money to pay off the entire amount, he can do so at any time. It is possible to work for interest-free contracts with a term. This allows the lender to keep track of the repayment. In addition, the term for interest-free loans plays a role here is worked with collateral.
With a private loan agreement, it is possible to work with and without notice. (# 6)
How is a personal loan taxed?
If the lender achieves a profit through interest on the repayment, this is to be regarded as a return from the capital assets. These interest income is subject to income tax. However, there are also special rules here, for example for family members. In this case, however, a number of conditions are relevant:
- Income of the lender
- interest rate
- loan amount
In order to avoid a conflict with the tax office, it is advisable to contact a tax adviser, especially for larger sums of money. An incorrect indication can lead to a high tax burden.