If lending money to an individual, a friend or a relative seems a good idea, it is however necessary to take certain precautions to avoid possible hassles.
1 – What is a loan between individuals?
The loan between individuals is a loan of money concluded directly between two natural persons, without the intermediary of a credit institution.
An individual can legally grant a loan to another individual (family, friend or third party) under conditions freely defined between them.
This loan can be used to finance a project (purchase of a car, household appliances, etc.), meet an unforeseen need for cash, etc.
This operation can be carried out directly or via social networks or via a specific crowdfunding or participatory financing platform that connects individual lenders and individual borrowers.
2 – What are the rules of the loan between individuals?
The lender undertakes to lend the money and the borrower to return it. The two people agree on the terms of the loan and then decide on the form of the contract.
It is strongly recommended to formalize the operation in writing . This constitutes proof of the remittance of funds, of the purpose thereof (loan and non-donation) and this facilitates the recovery of the loan in the event of a dispute.
According to article 1359 of the civil code , the proof of a loan of an amount greater than 1,500 euros between two people can only be made by producing a written contract. The requirement of a writing attesting the borrower’s willingness to repay is necessary except material or moral exceptions to produce a writing (eg a loan between a son and his father).
The writing can take the form of a loan agreement signed by the lender and the borrower, or an acknowledgment of debt , signed by the borrower alone.
The loan contract is established in two copies ( form CERFA 10 142 / 2062 ). It must be dated and signed by both parties, who will each keep a copy. This contract can be made in writing under private signature ( article 1359 of the civil code) or drawn up by a notary (this is advisable if the loan is of a large amount).
It is possible to register this loan with the registration department of the tax administration. This makes it possible to prove the date of the act (give it a certain date) and its existence in the event of a dispute. This formality costs 125 euros ( article 680 of the general tax code ).
The acknowledgment of debt is written on plain paper, dated and signed by the borrower. An original is retained by the lender. The borrower keeps a copy. The amount in figures and in words must be written by hand by the borrower ( article 1376 of the civil code ).
You can use our standard letter ” I have lent money to a relative. Should I have him sign an acknowledgment of debt ?”.
If the loan between individuals is concluded via a crowdfunding platform, it must be checked that it is registered with ORIAS (Organism for the single register of insurance, banking and finance intermediaries) as a crowdfunding intermediary , and that it has a banking license issued by the Prudential Control and Resolution Authority (ACPR).
Indeed, there can be many fraudulent proposals, such as the request for payment of significant application fees without a follow-up being given to the loan. You have to be careful when choosing a crowdfunding platform and only trust platforms that are known and approved by the ACPR.
3 – How does the loan between individuals work?
The principle consists in avoiding the banking system which imposes certain obligations, which can exclude people with atypical financial profiles. It is for this reason that the loan between individuals has developed in recent years. But, these bonds exist to protect the borrower.
4 – What are the advantages of the loan between individuals?
First of all, the terms of a loan between individuals are freely defined between the borrower and the lender.
For the borrower, this operation is a valuable aid when his borrowing profile is considered too risky by banks and credit organizations. This is particularly the case of a young entrepreneur who does not yet have solid guarantees to launch his project.
For its part, the lender is generally attracted by high interest rates that are more attractive than the rates of other financial products such as passbooks, futures contracts or life insurance.
5 – What are the loan rates between individuals?
A loan between individuals can be concluded free of charge, that is to say without interest rate, which is often the case in a family or friendly setting.
It can also be remunerated by the application of an interest rate. Even if the loan rate is freely set by the parties, it must respect the wear rate set by the Banque de France for the different loan tranches.
The wear rates are revised each quarter by the Banque de France. To find out more, visit the Banque de France website .
6 – Do we have to declare a loan between individuals?
Whether the loan granted is with or without interest, the borrower must file a tax return if the loan (or the combination of several loans) exceeds 760 euros. The lender is not subject to any reporting obligation.