How to make a loan to an individual or relative?

Loans between individuals, such as friends and family, are also an option. However, certain formal requirements should not be neglected, even if the money is lent to close people. Do you know how to make a loan to an individual or relative safely?

How to make a loan to an individual or relative

How to make a loan to an individual or relative


Helping a friend or family member with a loan is a great show of appreciation to someone who may be having a hard time with an unforeseen event. Here are some guidelines to keep in mind to avoid inconvenience.

Use a written contract

When it comes to money, it is better to leave everything in writing. The confidence that it is a family member or friend is not enough for the deal to be verbal. It is best to establish everything from the beginning and thus avoid future problems. You can write a document that collects the following information:
– Place and date on which the loan is signed.
– Data that identify the borrower and the lender.
– F irma of both.
– I A MOUNT of the loan.
You must also specify whether there will be interest or not and the percentage of these, as well as the deadline to return it. You must also indicate the type of installments (payment per month, for quarters…) and any other conditions to which the loan is subject. Formalizing this contract will not only legally protect you from any incident, but will prevent misunderstandings with the Treasury.

Do individual loans pay taxes?

No, they are not subject to taxes. But you must write the contract including all the requirements mentioned above. Keep in mind that donations do pay inheritance and donation tax. If you do not have a valid contract, the Treasury might think that you are making an illegal donation instead of a loan.

What happens to the interests?

What happens to the interests?

It is important that you know that, if you are going to charge interest, that money you earn should be included as income in the income statement.

Informing the Treasury is mandatory

Although loans between individuals do not pay taxes, you do have to notify the Treasury. You will have to present the signed contract and proof of the transfer between both bank accounts.

In addition, you will have to present the self-assessment form ( model 600 ) indicating that the operation is tax free. Since you have signed the contract, you will have one month to submit this form to the Treasury.

Is there another alternative to the contract?

Another way to formalize the loan is to raise it to notarial deed. In that case a notary will support the officiality and legality of the operation. The difference from the contract is that in this case you will have to pay the notary.

Loans between individuals have the advantage that for tax purposes they do not involve taxes. Apart from that, they are a much more immediate and flexible way of obtaining money. The process is expedited with respect to requesting it in a banking entity.

Now you know how to make a loan to an individual or family member. If you follow the formal requirements that have been seen in this guide, you will have no problem doing so by legal means. Another option to get fast financing is online loans. In Ideal Loans you can compare different options of fast loans.

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