Loans between individuals: types, expenses and taxes
Loans between individuals are an increasingly popular method of financing due to the obstacles we find in obtaining a bank loan. Currently, we can distinguish between loans between friends or family and P2P loans (from person to person) offered by crowdlending platforms.
Throughout the article, we will comment on the differences that exist between them, in addition to the expenses, taxes, and interest paid (or not) on loans between individuals.
Types of loans between individuals
We differentiate 2 types of loans between individuals that we can use in case the bank does not grant us a loan or we do not want to go to one to get financing.
Loans between friends or family
We can ask friends and family for a loan to get the money we need and not only that, but we can also do it officially with a contract in between. In general, in this type of loans, there is enough confidence that it is not necessary to make a contract because we assume that our family member or friend will return the money, however, there are several reasons that make it advisable to sign a contract anyway :
- Record the loan: In this way, we ensure that the Treasury does not see the movement as a covert donation.
- Be assured that the money will be returned under the agreed conditions.
P2P loans with crowdlending platforms
Loans through crowdlending platforms are considered loans between individuals, although, as we mentioned at the beginning, these are much more like a bank loan. In crowdlending platforms such as Good Credit, lenders (called professional investors) want to get a return on their savings and use this platform to get in touch with people seeking financing.
Good Credit is responsible for conducting a risk analysis of the borrower to decide the interest rate and the repayment term of the loan that best suits their needs. Unlike what happens in a bank loan, interest is shared among investors, while the platform charges a management fee for its role as intermediary.
In crowdlending platforms, the loan application is simpler than those of a bank, and no guarantees are necessary to obtain a loan.
Do you pay taxes for a loan between individuals?
Loans between individuals are subject and exempt from taxes, that is, it is mandatory to present the Property Transfer Tax (ITP) and Documented Legal Acts (AJD) so that the loan is recorded in the Treasury but no payment is made. This is why it is so important to sign a contract when making a loan between individuals, so we can show that we are talking about a movement that is exempt from taxation.
The contract on loans between individuals
When making the contract for the loan between family or friends, we must include among others a series of basic characteristics of the loan, such as data from both parties, the loan amount or the term, among others. If you want to know the importance of these contracts and what should be included in the more thoroughly, the article loans between individuals: with or without a contract? It has all the necessary information.
In the case of loans through crowdlending platforms, the contract will already be predefined according to the platform model, as with a bank, so we should not worry about it, we just have to review it to verify that we agree with the contract conditions.
Loans between individuals, without interest?
A very important point in loans between family and friends is the interest payable. In the contract, it is essential to make clear how many interests are going to be paid for the loan, since in case of not specifying it, the Treasury will assume that an interest rate equivalent to the price of money has been charged (official interest rate set by the Capital lender).
If it is agreed that there will be no interest on the loan, it will be necessary to highlight it in the contract, in the previous link we find an example of this.
In loans through crowdlending platforms, the interest rate will be fixed depending on the risk attributed to us by the platform, along with the term and amount. In the case mentioned above of Good Credit, the average APR of its loans is 6’95%.
Expenses on loans between individuals
The contract of loans between individuals can be maintained as a private contract for which it is not necessary to make a public deed so that there is no additional expense to pay for the formalization of the loan. In this way, the only thing we could consider as an expense in this type of loan is the commission for opening or management that the crowdlending platform usually charges for its intermediary services.