We do not all want or can use the offers of banks and loan companies. Many of us prefer to act beyond the reach of financial institutions, because it carries much less risk. If you do not comply with the terms of the gentlemen’s agreement, we only put at stake with the person from whom you borrowed funds and, possibly, the case in court, if our creditor decides to claim money back officially. For some it will mean a lot, others will treat such a favor as any other. How do you lend someone your money to secure your interests? Do you even decide to take such a step? Let’s check all the pros and cons.
I borrow money privately – will I ever see it again?
This question is probably asked by a large group of people who decided to financially support their friend or family member. The matter is delicate because even if we give him unlimited trust, we cannot predict (and he himself) what will happen in his life for the time for which he received support from us. Therefore, we have no certainty whether the amount will be returned to us on the agreed date. Probably, we are also thinking about how to lend someone your money, which in this situation will be the best solution. Meanwhile, it is not always right to refuse to borrow money – especially if the borrower is well versed in our financial situation and knows that it will not be a major problem for us.
How do you lend someone your money?
On the one hand, we do not want to offend anyone, on the other – we also need to think about our own financial security. The decision made under the influence of emotions can have really serious consequences for us, because we, being someone’s guarantor, will answer with our property for his debts if he stops paying them off. It is similar in the case of borrowing money – it is worth applying the principle of limited trust. The gentlemen’s agreement mentioned above is not always enough – people who have doubts about the subsequent solvency of their borrower should take into account the formalization of the conditions of assistance. It should be expected that this will not be met with the enthusiastic reaction of the other party, but if he really needs our help, he will also agree to this condition. This obligation also imposes on us the law. When do we need to enter into a loan agreement?
Family money loan agreement
The Civil Code says that the loan agreement between natural persons assumes the transfer to the borrower of some part of the lender’s property with the simultaneous obligation to return it. It is temporary because the parties usually agree on the duration of the contract. It is also a consensual agreement, i.e. one that becomes valid only when both parties make appropriate statements.
Theoretically, there are no contraindications for it to be concluded orally, but it will be less precise then and, in the event of borrower’s difficulties with repayment, proving your argument will take us much more time. In addition, there is also a monetary limit to which we can agree to such a solution. In accordance with the provisions of the Civil Code, contracts whose value exceeds $ 1,000 are confirmed in writing.
Another issue concerns payment. Transferring your money to the borrower does not have to imply interest for defaulting on the payment deadline. It may as well be polite, making it a bit like a loan agreement. It depends on us which variant we choose. Certainly, the relationships we have with the person whom we provide financial help with will probably play a key role here. Regardless, we should remember that not specifying a specific date of reimbursement is tantamount to six weeks’ notice – this is how long the law gives an unreliable debtor to repay a loan contractual obligation.
What should a money loan agreement include?
How do you lend someone your money? Is writing a contract the most appropriate form in this situation? For a loan contract to be legally binding, it must contain seven elements. First of all – the date and place of its conclusion. Then specify the parties to the contract (names, surnames, addresses, ID numbers, dates of birth) and indicate what they apply to. It is very important that the document contains an accurate description of the amount borrowed, both in numerical and verbal form. Next in line are the conditions for repayment of the loan, i.e. the key record for the lender. Depending on the arrangements, the clauses may provide for a refund in several installments, with interest (at the level of max. 23%) or in another currency – by transfer or cash. If this is our wish, we may also note the option of early repayment in the contract. There should also be a declaration on the borrower’s assets. Let us pay attention to this, because this information will be a security for us if the debtor turns out to be insolvent.
At the end of the document, you must place the terms of termination for both parties (we must determine whether we prefer immediate or daily or weekly) and their signatures. Regardless of whether it is a loan agreement for a colleague or a family member, it will have any legal value in this form. It will also provide security for the borrower and his creditor (we assume that the debtor is the only person who fails to comply with the contract, while it can also be the lender).
Loan and PCC tax
It is also worth remembering that the loan involves some obligations towards the Tax Office. All information on this subject can be found in the Act on tax on civil law transactions (Journal of Laws 2000, item 86). If we are lending money to a friend or other unrelated person, we must remember to pay tax amounting to 2% of the loan amount. We have up to 14 days to borrow money. However, this obligation lies with the borrower. If we do not do this, we will be subject to a 20% penalty. Only persons who have received less than $ 5,000 or from several persons up to $ 25,000 within 3 consecutive calendar years may be released. This restriction applies to contracts concluded from January 1, 2009.
When do we not have to worry about the PCC tax?
The PCC tax applies to any loan agreement except when one of the parties is: a spouse, descendant (for example, child, grandson), ancestor (for example, grandmother, grandfather), stepson, son-in-law, daughter-in-law, siblings, stepfather, stepmother or one in-laws. However, one more condition must be met. The loan amount cannot exceed $ 9,637, and this value includes loans for a period of 5 years. There is also the possibility of total exemption from this obligation, however, this requires certain formalities. It will be necessary to submit an appropriate application within 14 days of the conclusion of the contract and to submit a document confirming the transfer of money to the person.
How to recover the money borrowed with the contract?
Now that we know how to lend your money to someone, it’s worth mentioning the process of getting it back. Writing a contract definitely increases the chances of getting money back if it has not been done under the conditions specified in the document. What are our options? The best (and most effective) way is to bring a lawsuit to a civil court and claim your debt back, also with interest – if you want. It is worth to decide especially if we borrowed a larger amount. The cost of going to court is 5%. It will then be our responsibility to prove that we have actually transferred the sum to the debtor and he has not returned it to us. If we know that we may encounter some difficulties in this regard, let’s consider selling the debt to a debt collection company. Admittedly, we will not recover the full amount, because it will charge a commission for itself. However, having a partial or no return option, this is definitely the better option.
Should the prospect of a judicial struggle convince us that it is not worth lending money to anyone? It would be good if it became a warning that would prevent us from making a hasty decision. Helping other people is a beautiful gesture, but none of the parties can feel used by it. And this will happen if we borrow too much to the wrong person and if we do not properly protect our interests. I think we already know how to lend someone money to avoid unpleasant situations.