The restriction of bank credit and the high interest rates of fast loans companies are driving loans between individuals. An alternative to the traditional personal loan that allows new financial aid for families and individuals who need money quickly and at a very low interest, even without interest. Resorting to loans from friends and family is a financial solution in which both parties win, unlike quick loans. Because depending on the borrower you can get money without interest, because friends and family can give you loans without interest, ie at zero cost. Although it is not highly recommended from the point of view of the Treasury, which understands that there must be an interest rate at least equal to the legal interest of the money. Since otherwise, the AEAT considers that loans between individuals without interest conceal a donation of money. That is why we must be very careful with these financial operations if we do not want to avoid later dislikes and that is why professional advice is essential to know well the risks of loans between individuals and their taxation.
But aside from the above one of the great advantages of loans between individuals is that they are almost without paperwork unlike bank loans. Where much information is requested to perform the study of the credit: work contract, payroll, income statements, and even guarantee or real guarantee (ie mortgage). Therefore we have loans between individuals without endorsement, which does not imply that it does not have to be documented. Because in addition this type of loans has tax advantages to be exempt in the 600 model. Therefore, as there are no guarantees, neither personal nor mortgage guarantees, these loans are based on reciprocal trust between the lender and the borrower. But as we said before, that does not mean not having a loan contract like a bank does when it grants a personal loan. The contract will justify the entry of money into the account of the individual, in front of the Treasury and the declaration of income, and thus avoid problems for money of dubious origin as well as problems in the declaration of income for capital gains derived from apparent donations. They really are a loan between individuals.
Steps to follow for a loan between individuals
As we saw before, after all, loans between individuals in Spain are very similar to traditional bank loans. That is why it is so important that there is a signed contract between individuals, be they friends or relatives, in order to avoid problems especially with the taxation of the loan before the Treasury. That in case of not having a contract that includes the interest rate that is paid, it will apply as income in the annual declaration by the IRPF of the lender the equivalent of the legal interest rate of the money. Or in the worst case, consider that the loan between relatives is a disguised donation and therefore the Treasury would settle the amount of the credit for the Inheritance and Donations Tax.
Hence, the steps to make a loan between individuals are the following:
- Identification of the parts of the loan contract: ie identification of the lender and the borrower, whether they are friends or family members.
- Establish the amount of the total operation: that is, the money that is granted in the loan between individuals, which normally in Spain are usually not more than 15,000 euros.
- Indicate the date and place where the contract is celebrated: that is, identification of where and when the contract is signed between individuals.
- Establish the term to return the loan: that is, the years or months that have to elapse to be able to return all the money granted.
- Choose a loan repayment system: because in the same time the system can be very different and therefore vary greatly what is the interest charge. Normally the French loan whereby each installment includes amortization of principal and interest, each installment of the same amount although the composition between capital and interest varies, is the most widespread in both personal loans and mortgages in Spain. However, in loans between individuals, the so-called American loan is more usual, in which the return of the capital is made at the end of the term of the loan. A return system that generates more interest by not amortizing any capital. Whatever the system may be, it is essential that the installment chart be included in the loan contract between individuals. That is to say, a table that establishes what the payments would be in each of the monthly installments, differentiated what are interests of what is the amortization of capital, and therefore what is the amortized debt and the capital of the loan pending amortization.
- Establish the interest to be applied as well as reference index: loans in Spain are normally linked to the evolution of the EURIBOR, especially in mortgage loans. The higher the term, the greater the variability of interest and therefore the financial institutions used a variable interest to adjust the interest income to the situation of the banking market, whose indicator is precisely the EURIBOR. But in loans between family members, profitability or interest income is not as relevant, so it is not so important to set a benchmark. So many of the loans between individuals in Spain tend to resort to the fixed interest rate, that is, the one that remains unchanged throughout the life of the loan. Whatever the chosen interest fixing system, it must be included in the loan agreement between individuals.
- Mention expressly the destination of the loan: although it is not normal for personal loans but for mortgages, that is to say those destined for the purchase of a property, it is highly recommended by the taxation of personal loans. Especially if they are between relatives, because the Tax Agency (AEAT) can consider that the loan conceals a donation money between parents and children, to avoid the payment of taxes on inheritance or donations.
- Register the loan contract: because once we have prepared the contract between individuals it is essential to present it to the Regional Ministry of Finance of the autonomous community where the parties reside, so that they can validate the date on which the contract is signed. Although another more official way of giving validity to the date of the contract is your signature or legitimation of signatures before a notary or third party that of faith of the date of conclusion of the contract.
- File signed copy of the loan contract between individuals: to avoid that in case of inspection of the State Agency of the Tax Administration, the supporting documentation could be provided. But for this, the previous step is important, which implies having previously filled the model 600. According to taxation in loans between individuals, they are exempt from paying the tax for documented legal acts. Although it is necessary to fill the corresponding model 600 according to the autonomous community of residence, indicating in the box the exemption of the loan between relatives.
Loans between individuals with FCI
The fact that this type of loans do not have any type of guarantee or mortgage guarantee, together with the fact that many loans between relatives in Spain are not documented, make the risk very high. And although the non-payment of loans between friends or family can generate many personal problems, the truth is that the National Association of Financial Credit Establishments, responsible for preparing the list of most important defaulters in Spain, the FCI file. It warns of the risk of the growth almost without control of the loans between individuals by Internet, through numerous online platforms, as it happens with those that offer fast mini credits. That allow you to get fast money easily, without paperwork, and others online. What can give more protection to users, by allowing contact between borrowers and lenders, although the key is not trust between friends and family but to comply with the law. And for this it is essential to document the loans between personnel and their taxation in order to avoid problems with the Treasury. This growth of personal loan platforms, also called p2p, can be the seed of what in the future would be a wave of debt defaults without guarantees, guarantees, or payrolls. And that can make many friends or family members end up in the file FCI of defaulters, for loans between individuals signed in difficult situations.