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What do I need to bear in mind with private loan agreements?
The first port of call for a loan is often the closest circle of family and friends. It is usually cheaper and easier to obtain than from a bank – after all, you know each other. However, a loan between private individuals can also cause a rift between friends or relatives. There are therefore a few points to bear in mind.
A loan from the closest circle
A loan does not necessarily have to be taken out as a traditional bank loan. It is also possible to take out a private loan. Whether it's a rich uncle, best friend or parents – if you don't have enough savings for investments, they are often the first port of call before a bank adviser. This form of private lending is probably particularly widespread for smaller amounts. There are no official figures on this.
The granting of loans of this type is very simple. A personal loan can be concluded verbally, and only the general laws on contracts in the Swiss Code of Obligations (OR) apply. To avoid misunderstandings or even disputes, we advise lenders and borrowers to draw up a written loan agreement.
The lender can waive interest on the money lent. However, gift tax should not be neglected. Anyone who receives a loan without consideration, such as interest, is subject to this.
As easy as it is to grant a loan between private individuals, the whole thing can quickly end in disputes and trouble. The saying ‘friendship ends with money’ is no coincidence. When lending to friends and family, it is usually not creditworthiness that counts, but trust.
If the contracting parties assume different conditions or if one of the parties does not honour the agreed conditions, this puts a strain on the private relationship. If the loan interest is paid late or the loan amount is never paid in full, this is not only annoying, but also puts the friendship to the test.
The written loan agreement
Loans are always associated with a certain risk that the borrower may not be able or willing to fulfil their payments. Even if the amount borrowed is expendable and a loss is bearable, a written contract should at least limit the room for interpretation and prevent disputes later on.
So create clarity with a simple loan agreement in which all the important conditions are set out in writing. You can also use this in your tax return. Loan and credit interest can be deducted from your income for tax purposes. However, only if they are documented in writing.
There are many loan agreement templates for personal loans on the Internet. And you can also easily draw one up yourself. The loan agreement does not have to be in any particular form. However, it is advisable to include the following information.
The written contract should include at least the following points:
Name and address of the contracting parties
Amount of the sum of money
Method and time of payment
Amount and due date of the interest rate
Date, signatures
These points are also recommended:
Place of jurisdiction
Possible securities
Intended use
Cancellation conditions
If you have recorded everything in this way and possibly agreed on collateral, you can rest assured that you have made provisions for all eventualities.
Alternative forms of credit
In addition to bank loans, there are also other reputable alternatives. Credit cards are an obvious option, especially for small amounts. Leasing is also an option for purchases such as a car. Consumer goods can often be paid off in instalments via the retailer at good conditions. Social- or crowdlending is another alternative for obtaining a loan from private individuals.
If you conclude the loan agreement via a professional crowdlending platform such as LEND, there are several advantages:
Loans between friends and relatives are a sensitive issue for both sides. Psychologically, dependency, guilt, generosity and trust are areas of tension that act alongside the financial relationship. A personal loan via LEND creates a certain emotional distance and helps to separate the private from the financial. The lender still finances a very specific borrower – in this case the acquaintance or relative. However, the two are separated by the lending process professionally managed by LEND.
The borrower can easily obtain money from several lenders via a crowdlending loan. The loan amount is divided up, and the financing is distributed among several lenders. Not only does one uncle have to advance the entire sum, but many uncles can invest small amounts. Also, the borrower does not have to run from one friend to the next to cover his entire credit requirements.
The upstream credit check prevents a person from carelessly falling into excessive debt and not being able to repay the loan obtained from friends or family.
The application and lending process at LEND is simple with online forms. All the necessary contractual documents are created, and you can even take out optional instalment default insurance. Interest payments can be viewed online. On top of this, LEND provides borrowers and lenders with all the documents required for tax purposes.
And not to forget: Because crowdlending works without banks, interest rates are low.
