When you lend money to someone or borrow from a friend or family member, for example, you need to clearly define the conditions of the loan and have them recognized by both parties. This is where acknowledgement of debt, an essential legal tool in Switzerland to guarantee a private loan. In this article, we'll explore in detail what an IOU is, why it's important and how to write it properly.
What is an IOU?
In an IOU, the debtor undertakes in writing to repay a sum of money to the creditor. Although it may seem simple at first glance, the, it plays a crucial role in protecting the interests of both parties in the event of misunderstanding or oversight.
Why is it so essential to the a private loan ? Imagine you lend a large sum of money to a friend. Without loan contract, If your friend denies or forgets this agreement, it may be difficult for you to prove the existence of the loan or get your money back. The IOU acts as formal proof of the debtor's obligation to the creditor.
How does this type of contract work in Switzerland?
In Switzerland, a private loan contract does not require any specific formalities, such as notarization, to be valid. However, it must contain certain elements to be legally binding (CO articles 312 to 318).
Essential elements of a valid contract :
- Identification of parties : Full name, address and other relevant details of lender and borrower.
- Loan amount : The exact amount loaned must be clearly indicated.
- Interest rates : If un interest is agreed, it must be specified.
- Repayment terms : How and when the money will be repaid (e.g. in a lump sum, in monthly instalments, etc.).
- Date and place of signature : For traceability and document validity.
Once these various elements have been agreed, simply modify them in loan contract template. You can download it at the bottom of this article.
The advantages of IOUs
Although seemingly simple, an IOU offers a host of advantages for both creditor and debtor:
- Legal protection : For the creditor, in the event of non-repayment, it constitutes formal proof of the money owed, thus facilitating legal procedures to recover the loan amount. For the debtor, it serves as proof that he has honored his commitments once the loan has been repaid.
- Clarity of terms : It helps avoid misunderstandings by clarifying loan details, These include the amount, interest rate and repayment terms.
- Building confidence : By formalizing the agreement, both parties demonstrate their commitment and seriousness, reinforcing mutual trust.
- Flexibility : Parties may adapt a loan contract to their specific needs, adding special clauses if necessary.
As you can see, if you opt for a private loan, an IOU is essential to ensure the interests of both parties.
Case studies and examples
Case 1: Disagreement between friends
Marc lent Sophie 10 000 CHF to help her start her business. They didn't feel it necessary to draw up an IOU, relying on their long-standing friendship. Unfortunately, two years later, Sophie was unable to repay Marc. Without a contract, Marc had no way of proving the loan.
Case 2: Early repayment
Julien borrowed 5 000 CHF from Camille and they signed an IOU with a specific maturity date. A few months later, however, Julien received an unexpected bonus and decided to repay Camille ahead of schedule. Thanks to the loan contract, he was able to prove that he had fulfilled his obligations.
How do you draw up your loan contract?
Writing an IOU is simple. However, you need to make sure you include all the essential elements for it to be legally valid.
- Clearly define the parties: Make sure that the full names and addresses of both parties are mentioned.
- Specify amount : Clearly state the amount loaned, in figures and letters to avoid any ambiguity.
- Indicate interest rate : If an interest rate is agreed, mention it. Otherwise, specify that the loan is interest-free.
- Details of repayment terms : Indicate whether the amount will be repaid in a lump sum or in instalments. Also specify the dates or frequency of payments.
- Signature of parties : All parties must sign the document, preferably in the presence of witnesses to add an extra layer of validity.
If you're not sure how to formulate your loan contract, We strongly recommend that you use a pre-established template, such as the one offered by Lica. This ensures that all essential elements are included and correctly formulated.
Our conclusion:
IOUs are a powerful tool for guarantee a private loan in Switzerland. It offers protection and clarity to both parties and can avoid future disputes or misunderstandings. If you are considering borrowing or lending money, always make sure you put the terms of the agreement in writing using an IOU. To facilitate this process, ask us now for the IOU template from Lica.