Would you like to help someone close to you by lending them money? Find out about the risks involved, and what you can do to protect yourself. We explain how to draw up an IOU.
What is a private loan?
A private loan is when an individual borrows a sum of money from another individual. But also to a company. Indeed, it's not uncommon for a private individual to lend money to another private individual in case of need. Getting credit when you're sued is not always possible, depending on the situation.
This is a frequent occurrence, and an excellent way of bypassing traditional bank financing. Lending money between individuals often generates less interest. What's more, the repayment procedure can be simplified. It should also be pointed out that some companies prefer to borrow money from private individuals. This is because companies do not always meet the conditions required to be able to borrow from a private individual. obtain a bank loan.
Why protect yourself when making a private loan?
In most private loans, the agreement between debtor and creditor is verbal. This is a frequent occurrence, since private loans are generally made between close relatives. But it can also be between spouses or between members of the same family. Private lenders tend to neglect precautions for this kind of agreement. Yet a loan is still a loan, and there is always a risk of default.
Don't lose money!
Indeed, when you lend money, even to someone close to you, you are not immune to late payments. These delays can be prolonged and repeated. In the worst case, your creditor may simply renege on the debt. Or he may claim it was a gift from you, and you'll lose your money for good. In such cases, if you decide to lodge a complaint, you'll be involved in lengthy and costly legal proceedings, for want of tangible proof.
To avoid this kind of problem, you need to draw up a contract called an «IOU». This is the document that justifies the loan. If the loan is made between spouses without this document, it will be considered a donation in the event of divorce or the death of the lessor.
Drawing up an IOU will enable you to enforce your right to repayment in the event of a problem. This document will also facilitate any legal proceedings should the borrower decide to stop repaying you. You should also be aware that an IOU can enable you to obtain credit with debts. You'll find more details in the following article « How to get a loan in Switzerland with debt collection records?" .
What does the law say about private loans?
There are two articles of law concerning IOUs. More specifically, article 82 LP refers to the Federal Law on Debt Collection and Bankruptcy. This article stipulates that if a debtor sues his creditor and the lawsuit is based on an authentic letter of acknowledgement of debt (i.e. one that has been recorded in a notarized deed or under private signature), the creditor may request the provisional release of the opposition.
Swiss Code of Obligations concerning consumer loans (on page 220, Chapter II, articles 312 to 318).
What does not constitute an IOU?
If a relative borrows money from you to purchase a consumer item, such as furniture or a car, the law would not consider a simple invoice in your possession as an acknowledgement of debt (i.e. proof that the money came from you). It should also be pointed out that, in court, an e-mail or text message exchanged by the creditor and debtor cannot constitute proof of the loan.
How do I draw up an IOU?
To draw up an IOU properly, you need to bear in mind that this type of agreement between lender and borrower must always be in writing. As the lender, you must ensure that the borrower's undertaking to pay is not subject to any conditions or reservations.
Obligatory points when drawing up an IOU
In a recognition, it must be possible to read :
- Full name of both parties. In particular, the debtor and the creditor; ;
- The sum of money making up the loan. This must be written in figures, then in letters; ;
- The loan term and any agreed monthly repayments; ;
- A legible handwritten signature from both parties
When drafting your acknowledgement, make sure that all sums (loan sum, sum of each installment, sum of interest if any) are clear, so that the judge doesn't make any hazardous calculations in the event of a dispute. Otherwise, your request for release may be rejected if your acknowledgement does not clearly include the usual key elements. Note that you can only take legal action if the due date of the loan or repayment has passed.
For this contract to be legal, both parties must be of legal age and in full possession of their abilities. Neither party must have any physical or mental problems.
If the creditor is a legal entity, you must check with the commercial register that the signatory does indeed officially represent the company.
What is the limitation period for this contract?
Generally speaking, the statutory limitation period is 10 years. However, if the private loan is between spouses, the time limit is fixed for the period during which both parties are married. The clock only starts ticking after a divorce.
In conclusion...
If you have any doubts about how to write your IOU, contact your Lica partner and one of our specialists will help you. We can also send you a standard document to save you time. If someone you know wants to borrow money, talk to them about Lica and our conditions, which are currently the most attractive on the market! For all financing inquiries, click on the following link: Make my request with Lica.