With the private loan often ends the friendship

A short financial bottleneck: The next salary is not yet there, the last for a major purchase already spent – and then the car or the washing machine breaks down. Many people resort to a personal loan from friends or family to bridge the gap in the short term. However, this has its pitfalls.

It is about a manageable sum, and certainly they want to pay back the money within the next weeks. Then you don't necessarily have to take out a loan from the bank. If you have good friends or family, you will certainly be able to borrow a few hundred or even a few thousand euros there.

At first glance, this has some advantages:

  • When you borrow money privately, you don't have to get a Schufa report first.
  • The lender does not charge interest at best.
  • You usually do not have to offer collateral.

Personal loan only with contract

But: money is the only thing that can stop friendship, as the saying goes. Someone may lend you money without any problems – but there may be problems with repayment. Possibly the one who lends the money needs the sum back faster than he had thought himself. Or the agreed repayment date passes without you having set aside enough to pay off your debts. This will put a strain on the relationship. Apart from that, no ombudsman will help you in this situation.

That is why, when you borrow or lend money privately, you should always draw up a contract. This reduces the risk that a dispute will arise. Good to know: You do not necessarily need an expert to draw up such a document. But: the larger the sum you borrow or lend, the sooner you should seek advice from professionals. If only small sums are involved, it is important that you record the framework data and both confirm with their signature that you will adhere to what has been agreed.

What you should consider

The contract should at least state:

  • Who lends money to whom?
  • What sum is involved?
  • By when it must be repaid?
  • Will there be interest on it and, if so, how much?? When is it due?
  • Will the sum be paid back in one lump sum or in installments?
  • What should happen if the repayment dates are not met?

If this is too much bureaucracy for you, you should at least not hand over the money in cash, but transfer it with the keyword "personal loan" or have the receipt of cash confirmed on an appropriate receipt. This at least makes it clear that money has really been handed over and that it is not a gift.

Where the fiscal hook is

Apart from the fact that many relationships have been broken because of money, you should also consider the tax side: interest from a personal loan must be taxed. If, on the other hand, no interest is charged, the loan could be seen as a gift – and this can also have tax consequences. This is why you should talk to your tax advisor for safety's sake before drawing up a contract for a personal loan.

If you want to lend money to a friend, you should think about these points in advance: Why have they approached you in particular? Wouldn't it be easier to borrow money from the bank? If it turns out that the bank does not want to lend to the debtor because of his life situation, you should think carefully about whether you want to provide him with the money.

No loan without collateral

Even with a contract, you are not free from doubt that the debtor will not repay the loan. If someone is privately insolvent, there will be no money to pay off a loan. That is why you should think about collateral, even if it seems strange to you. This could be a painting or a television set, for example. If you decide on a security, it should also be mentioned in the contract.

Think ahead: if in doubt, will the debtor really hand over the collateral to you voluntarily? If you have any doubts about this, you should at least have an acknowledgement of debt signed by a notary public for large sums of money. Otherwise, it might be difficult to get the collateral if the debtor does not pay back the borrowed money.

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