Contract model - Loan between individuals

contract between individuals

To make a loan between individuals legally you need a contract. Download a model loan agreement and find out how to proceed.

Money is often borrowed from family or friends without even thinking about the importance of signing a contract. Although when you loan money you are convinced that at some point it will be paid back, it does not always happen this way.

It is always important that the loan is registered in a loan agreement between individuals to have a document that proves that the debt exists.  

You must take into account that otherwise the Treasury may qualify it as a disguised donation and you could get into serious trouble. Everything must be declared before the Treasury . You want to know more? Continue reading so that you know all the details about it and thus avoid penalties.

What is a loan agreement between individuals ?

This document is a contract that involves a transaction between natural persons . The lender is the one who lends the money and the one who receives it is known as the borrower. It is important to note that it can be one or more people who appear as a lender or borrower.

The loan between both parties can be free or for consideration . That is, that the debtor has to pay interest. Therefore, the contract stipulates certain conditions such as the time to return the money, and if interest is charged, how much will the percentage be.

If you want to avoid inconveniences in the future, it is convenient that you use the model of loan agreement between individuals . In this way, you will have a written instrument where it is established who owes you the money, the amount and the conditions for the refund.


Contract model: loan between individuals

Contract model in PDF


Do you have to pay taxes?

This type of loan is subject to the property transfer tax, but you do not have to pay anything . However, after the contract is signed, three copies will be made; one will be held by the lender, another will be held by the borrower and the third must be submitted to the Ministry of Economy and Finance of your Autonomous Community.

The receipt should also be included where the bank transaction between accounts is reflected. Likewise, the borrower must self-assess the property transfer tax and documented legal acts by filling out Form 600 from the Tax Agency . The period established by law for the debtor is 30 days to notify the Treasury.

Take into account that this transaction is exempt from payment. But Hacienda   It must be informed so that it can verify that tax evasion has not occurred under the figure of disguised donation.

Likewise, if the contract establishes that the debtor must pay interest on the loan between individuals , they must be included as earnings in the income statement.

Loan between individuals without interest How do I justify it?

By making the loan contract without interest and registering it, you would be proving the origin of the money. However, it will not be enough to escape paying taxes on that capital. However, if the return of that amount is not justified before the law, it would be considered a disguised donation. This means, the application of the inheritance and gift tax.

Therefore, to justify its return you have to keep the bank movements, which justify that the money has been returned . In this way, if you want to help a family member or friend or receive help yourself, you avoid having conflicts with the Treasury.  

An important aspect that you should know is that loans between individuals are not limited only to family members . Many claim that it should only be between parents and children closing the circle. When in fact it is not like that, because you can establish this transaction with people who are not related to you.

What data should this contract model have?  

At the time of writing the contract, verify that it includes a series of information that has to do with the conditions, duties and rights of both parties. Here we tell you what data you should have:

  • Date: Refers to the date of signing of this contract.
  • Personal data of the lender: Full name and identity document of the person who lends the money.
  • Borrower's personal data: Full name and identity document of who receives the loan between individuals .
  • Amount: It is the exact amount of the loan.
  • Interest: In the event that the payment of interest is agreed, it must be detailed how much the percentage will be applied on the amount loaned. If interest is not charged, it must also be declared in the contract. Because, if you omit it, the Treasury can make the lender pay income tax to individuals.
  • Period to repay the money: Specify the time that the debtor will have to repay the loan, avoid placing unrealistic terms. For example, if the lender is 70 years old, the repayment term will be 30 years. Also, it should be established in this document if it is possible to make an early cancellation of the financing.
  • Payment method : Detail the payment method, in other words if it is a deposit or bank transfer. It is suggested that the cancellation be made in this way so that the money will be returned.
  • Clause on default: It establishes the actions that will be followed in case the debtor does not comply with the payment of the loan.

After preparing the three copies of the contract model , the parties involved must sign it in the final section and on the left edge of each sheet of the document. Also, stamp the signatures in the annexes that are attached to the contract.  

When drafting the loan contract between individuals, it is convenient that you include any clause that is necessary . This will allow you to take the forecasts in case any inconvenience occurs.

Does the contract between individuals have to be notarized?

It is not mandatory to bring the contract before a notary to be converted into a public document. The fact of having a signed contract already guarantees the protection of your rights. In addition, you would save the expenses charged by the notary.

On the other hand, if you decide to notarize the contract in case of non-payment of the loan, you can request a seizure of the borrower's assets directly before a judge . In this way, the document will have the character of an executive title, which means that you can start the execution process to get paid.

Now, if your contract is not notarized and the debtor does not repay the loan money , you must initiate a lawsuit where you will have to prove that they have not canceled you. Then the judge will issue a sentence so that you can later request a seizure of the borrower's assets.

Who performs this contract and how much can it cost?

The drafting of a legal document as the model of   peer-to-peer lending contract is the responsibility of a lawyer. The cost will depend on some factors, the minimum limit can be $ 113 and the maximum up to $ 590.

What happens if I don't make a contract?

By lending money without being covered by the protection of a contract, you expose yourself to question whether it is a loan or a disguised donation . For this reason, a contract will give you a high level of legal security. This is because this document establishes the duties, rights and obligations between the lender and the borrower.

It should be noted that when making a loan contract between individuals you accept the provisions of the Civil Code. Likewise, to what is stated in the Law of tax on patrimonial procedures and documented legal acts.

What happens in the event of the death of the debtor or the lender?

If when lending money the case occurs that the debtor dies, but you have entered into a contract and have made your tax return, it is possible to claim this debt from the successors of the borrower who has died .

In general, debts are not extinguished when the debtor dies and can be included in the inheritance . However, if the borrower does not have heirs, you will not be able to collect that money from anyone and you will lose it.

Now, suppose that it is the lender who dies, then the people authorized by law to collect the money are his heirs. If the debt is between relatives such as parents and children, if the father dies his son would be heir and debtor, therefore the debt is extinguished.

Additionally, if the borrower has siblings, he will have to pay the amount of money that corresponds to each heir.

Always remember the importance of knowing the implications of lending money between individuals . This way, you won't get in trouble.  

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