With a private loan, money is borrowed from a private person. This loan has a number of advantages when a number of conditions are met.
Private loan: what is it?
Private loan, it sounds a bit dark. In reality, it is nothing but borrowing money from a private person. This will often be a family member or friend. As a parent it can be useful to lend money to children, for example to help them with a first step as a starting entrepreneur (especially now that the venture capital scheme has been abolished) or with a major purchase.
A private loan has a number of advantages and disadvantages. It can be nice to borrow money from someone you know because the conditions are usually more flexible than at a bank. With this form of loan, no registration takes place with the BKR.
Or it may be an alternative if a BKR registration makes a loan difficult. Moreover, it is probably easy to communicate with this person and the loan is often taken out because people ask for a lower interest rate or longer term with acquaintances. How low can this interest be? The Tax and Customs Administration is taking a look at this.
The Tax and Customs Administration has set a minimum interest rate for private loans. The interest must be in line with the market. If the interest falls below this minimum, the difference between actual interest and minimum interest is seen as a gift.
Other tax rules apply to donations, creating a complex situation. On the other hand, the donation rules can be beneficial for both parties. For parents who take out a private loan with their child, it is permitted to donate the interest back to the child.
This is an exemption from gift tax and currently stands at a maximum of 5,000 USD per year. On the website of the Tax Authorities you will find extensive information about the possibilities of a private loan and the associated exemptions. Obviously, it is important to read this information carefully before a private loan is taken out, so that you will not be faced with surprises later.
Draw up a contract
Taking out a loan with a known or family member is a major danger. Money matters can lead to arguments if proper agreements are not made.
A simple solution for this is to draw up a contract in which clear agreements have been drawn up. This is also referred to as a private deed. What information must be included?
- Name and address of both parties
- Amount of the loan amount
- Start date of the loan
- Duration of the loan
- Interest on the loan amount
You can easily find a model contract online with possible additional information. If you are looking for certainty about a private loan, have the deed recorded with a notary. It has been no longer compulsory for several years to do this at the tax authorities.
In addition to the certainty of a contract, it is important for both parties to think carefully about the amount to be borrowed in advance. Reimbursement must be a realistic scenario, otherwise problems of both financial and emotional nature will arise for both parties.