If a need for money or investment requires a loan to be taken, it does not necessarily have to be requested from a bank. Even private investors can act as lenders and ensure that a lending business is created among private individuals. A loan from private individuals is completely freely negotiable in terms of its terms, so you can arrange interest rate, maturity, repayment and much more in coordination with the private investor.
However, many things should be considered, for example, when borrowing money from a friend or within the family, otherwise it can quickly lead to quarrels and legal disputes.
What is meant by a loan from private individuals?
If the lender is not a bank, but a private person – so in the loan jargon is spoken by a lending business between individuals. Any person of legal age and legal age may borrow money from another private individual or may issue a loan as a private investor. Loans from private donors are mainly within the family, for example, when parents lend their son or daughter money for building a house. The loans of the private persons can be agreed either interest-free or with an arbitrarily high interest rate. This is particularly attractive because private investors can opt for a condition regardless of the interest rate market. In addition, there is no need for a private credit or credit check on a lending business among individuals. The entire lending business can be made 100% free, regardless of whether the private lender is a family member, friend, work colleague or a hitherto unknown private individual.
What are the legal requirements for a private loan?
Legally, private loans are largely unregulated, so there are no explicit laws for this type of loan. A lending business among private individuals can basically be completed verbally or by handshake, whereby there are of course no securities and evidence for borrowers and lenders without a written contract. Consumer protection is also not responsible for private lending, so although private lending is legal and legally permissible, lending privately to privately is always risky. So it may be that you will be loaned to family members without a contract as a gift. If in doubt, you are in the burden of proof. For this reason alone, we recommend the loan agreement.
These things should be considered in a lending business between individuals
For example, if you want to borrow 10,000 euros from your aunt or a friend, you should prepare this private loan transaction well with the respective lender. This means that, with the involvement of a notary, you should in any case draw up a legally binding contract that contains all the “key data” for the planned lending business. Here are typical things like the amount of the loan amount, the agreed term and the amount of the monthly repayment rate important. Of course, the interest rate must be fixed in writing, so it can not cause problems later. If both parties agree on an interest-free loan, this should also be recorded in writing. According to the well-known proverb “Money stops friendship”, the credit agreement established with the notary constitutes an important security for both parties. Private money lending often causes annoyance in the course of its term, so that it can be trusted even if the borrower and the lender are involved Relationship exists, can certainly cause problems. This risk is in any case reduced by an existing credit agreement, since both sides can rely on the rights and obligations of the contract during their term.
Five tips for the lending business among individuals
1) A private lending business should under no circumstances be planned and executed without a valid notary contract.
2) The private investor must be aware that he must tax the interest on the loan granted as part of his income from capital assets.
3) An interest-free personal loan should only be chosen in exceptional cases. During the term can quickly encounter the problem that the private lender misses a return and wishes to have the money of the respective lending rather preferred to have created normally. At an interest rate of 1.00%, for example, the borrower still saves a lot of money, but the lender also has a measurable return in euros, which is currently well above the conservative interest rate.
4) A full special repayment right should always be granted. The borrower should have at all times the possibility to “cancel” the private loan by returning the balance to the private investor. The commitment to a fixed term can cause a lot of trouble, which should be prevented in view of the interpersonal relationship in any case.
5) Before the private lending business comes to fruition, both sides should sit together and, like a traditional credit, review the credit worthiness of the borrower and talk about their monthly incomes. This gives the lender a better feeling and assurance that the agreed monthly installment is sustainable in any case. If you trust each other so much that you agree to a private loan, then both sides should be open and honest with each other.
With the right preparation
A loan from private individuals can work well, but in any case it requires some preparation. Both parties should be honest and open about the proposed money lending, regardless of whether the parties involved are family members, friends or other individuals. For this, a notary appointment should always be agreed to create a legally binding contract. This contract should include all credit details, such as loan amount and interest rate. Only then both parties have a certain security and can approach the private money lending with a good feeling.