Lending money: Make sure to organise it properly
Lending money: Make sure to organise it properly
Lending money to a family member that is short on money or a friend who wants to use it to start his enterprise. How should you handle this?
Verbal agreement
You can lend money on the basis of a verbal agreement. You are on good terms with each other and expect that he/she will pay you back without any problems. An unexpected argument, death of the one who you lent the money to, or failure of the enterprise can be reasons why the money will not be paid back.
Written agreement
A written agreement is advisable to create more security. Especially when it concerns large amounts of money. The personal information of the creditor and the debtor is stated in writing. You will also determine in writing how the loan will be paid back and if the money needs to be spent on a certain goal and how the interest rate is arranged. When recording these agreements think about the fact that it is much harder to prove cash payments if this is not recorded in writing. In addition, in some cases you are entitled to certain fiscal benefits. If the loan is intended for the finance of a house certain rules apply concerning the deductibility. If you want to know more about this. Click here[JS1] (website in Dutch).
Creating more security
When setting up an agreement it is important to stop and think about possible unexpected events. For example, it is a possibility to determine an authorisation that money can be claimed in certain situations sooner than the agreed upon date. This can happen, for example, if the debtor dies. In this manner you create more security in regards to eventually getting your money back. Including a family member of the debtor who can ensure the payment of your loan is also an option. In addition, it is possible to include an agreement in which you determine that possible undesired expenses are for the debtor. Undesired expenses can be extrajudicial collection expenses.
Are all parties on the same page?
To prevent misunderstandings it is advisable to check if all parties have the same understanding of certain words. If the agreement consist of several pages, it is important that each party initials every page, understands and agrees to all agreements. If the loan agreement is not handwritten, it is also advisable to write down the amount of money in letters as well as in numbers. The Civil Procedures Code stipulates that a money loan agreement is only valid if the before mentioned has been applied, in this case the judge will deem the agreement as lawful.
Lending money
If you decide to lend someone money it is advisable to properly consider the content of the money loan agreement. If something is missing in writing then his can turn a friendly loan into an exhausting process, which can lead to great problems regarding evidence. Nonetheless, as the lender you can help someone and this can have fiscal benefits for you, because in this manner you can gain more interest from your capital. For example, you can agree upon a higher interest rate than the current interest rate of your savings account. If you want to lend money and you are not sure about the content of the contract, or you want more information, we are happy to advise you. Feel free to contact us.