How to make a loan between individuals

The loans granted between individuals are those that are agreed between two natural persons , such as between two friends or between a father and a son. They are credits between friends, family or relatives and are completely legal , but they must be formalized correctly so that they do not cause problems with the Treasury .

Loans between individuals are a good alternative to cover certain financing needs . You can ask a friend, family member or relative for money if you need to get quick financing, if the bank denies your credit request or if you want to avoid paying interest on the loan granted.

Among the characteristics of loans between individuals, it stands out that they are regulated by the same law that regulates bank loans , as well as those granted by any financial institution (Law 16/2011). They can also be requested from any individual such as friends, acquaintances, relatives or people dedicated to lending money.

In addition, the conditions agreed in the loan must be written in a contract . In this document, the limits and conditions are made clear so that each of the parties involved is aware of their obligations. Loans can be free, that is, without interest, or have costs, depending on the agreement reached with the person who lends you the money.

The loan of money between individuals requires a more agile and faster process than the one you must follow when going to a financial institution. The steps to follow are these:

1. Reach an agreement with the person who lends you the money. You must negotiate the quantity, the price and the return conditions.
2. Drafting of the written contract specifying all aspects of the loan.
3. You receive the transfer of the loan money in the account that you have indicated.
4. Declare the contract to the Treasury , since it is the person who receives the money who must do it. You have a maximum period of one month to do so, counting from the signing of the contract.
5. Return the money in the manner agreed with the private lender that made the deposit.

Why is it important to make a contract between individuals?

It is highly recommended to formalize the agreed conditions of the loan through a contract between individuals. Basically, for two reasons:

• You have to present the contract to the Tax Agency to demonstrate that it is not a donation of money. That is, you do not receive a donation, but a loan.
• Through a written contract, the conditions agreed between you and the person who lends you the money are clear .

You can write this contract yourself without having to formalize it before a notary , but it is recommended that it contain essential data such as the personal data of the lender and the borrower (name, ID and address); the amount of the loan; the interest rate (if it is free, 0% interest must be written down); or the commissions and other derived expenses that have been agreed in the payment to your friend, relative or acquaintance, among others.

The declaration before the Treasury of a loan between individuals is a fundamental procedure to demonstrate that the money received is not a hidden donation , for which a certain tax must be paid.

Regarding the taxation of a loan between individuals, We help you discover everything you need to know:

• It is subject to the tax on onerous property transfers (ITP), but they are exempt from taxation. Therefore, you have to present the liquidation of the tax , but without it costing you anything.
• The borrower is in charge of paying the tax , that is, the person who receives the income from the loan money.
• The ITP must be self-assessed using model 600 before the delegation that corresponds to you in your area of the Tax Agency. You can present it in person or virtually.
• The term for presenting the tax settlement is one month , counting from the day of signing the loan contract between individuals.
• If it is a loan without endorsements or guarantees , the amount of the credit represents the declared tax base.
• If the loan has some type of guarantee, the tax base is the amount of the obligation or the guaranteed capital . If the amount of the guaranteed capital is not verified, the capital is taken as the tax base, adding three years of interest.
• Documentation of relationship between borrower and lender is not required .
• If the lender charges you for the loan (commissions, interest or other expenses), you must declare said benefit to the Treasury as a return on movable capital.

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