DK konsult

Family Loan

When borrowing money between family or friends, it is a good idea to make a written loan agreement. The loan agreement describes the terms of the loan and is therefore in the interests of both parties. It provides a firm framework to avoid potential conflicts and misunderstandings.

What is a Family Loan?

A family loan is a type of debt, where the borrower typically either pays very low interest or no interest at all on the loan. The reason it is called a family loan is that this type of loan is often used for loans between family members or among friends.

The reason for this type of loan is therefore typically that the lender wants to help a friend or family member by providing a loan at low or no interest. A family loan is thus opposed to other loan agreements, where the lender’s interest is mainly to receive a return on interest from the loan. An interest-free family loan can therefore be a good help to, for example, your children or grandchildren if they stand and have to borrow money.

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Why should I make a family loan agreement?

When loans are granted between family and friends, written documentation of the content of the agreement is rarely made. Over time, you forget what was agreed, or maybe you do not even agree on the exact terms of the loan – such as when the loan is to be repaid, whether interest is payable, whether the loan can be terminated, etc. Therefore, unfortunately, it is not uncommon for misunderstandings and conflicts to arise in these situations. 

Conflicts between family members and / or friends can be very unpleasant and rarely affect only both parties, ie the lender and the borrower, but also the rest of the family or circle of friends. However, such conflicts can easily be avoided with a written loan agreement that clarifies all the details of the loan and how the debt should be settled. 

 

The lender is more exposed without a loan agreement

In addition to the above reasons, the lender is more exposed without a written loan agreement. If for some reason the borrower cannot or will not repay the loan, it can be extremely difficult to recover the debt because there is no written documentation for the loan. Therefore, it can be difficult to prove what was agreed upon when the loan was granted. 

Thus, with a loan agreement, you ensure that all essential terms and conditions of the loan are considered. In addition, you can be sure that these terms are legally documented.

 

DKkonsult family loan form includes:

  • How much is borrowed?

  • Exactly who the loan is granted to?

  • Whether interest is payable?

  • Should installments be paid?

  • Should there be a date for repayment of the entire loan amount?

  • What is the consequence if no repayment is made?

  • When will the loan become obsolete?

We recommend that a written loan agreement is always made for loans where the amount exceeds DKK 10,000.

Should TAX be paid for by a family loan?

One interest-free family loan basically has no tax consequences for either the lender or the borrower. The reason for this is that the lender has no interest income as a result of the loan and therefore the lender does not have to report any income for the loan. Similarly, the borrower is not taxed, even if the borrower actually gets a financial gain by not having to pay the ordinary market interest rate.

If the family loan is provided with interest, both the lender and the borrower must, on the other hand, report these to SKAT, as interest income and interest deduction respectively.

What happens if the lender goes away?

If the lender goes away before the loan is repaid, the part of the loan that has not been repaid will be included as an asset in the estate. In that case, the estate may demand immediate payment of the outstanding debt.

Therefore, it is important to document any repayments and write-downs of the loan, so that only the outstanding debt will be included in the balance sheet and not the original size of the debt. If the documentation is not in place, you theoretically risk that the entire loan will be included in the inventory, no matter how much you may have already repaid.

How do I make the family loan valid?

You create a family loan agreement by filling out our form here on the website. Here we ask you a number of questions. You can go back and forth between your answers, and only when you are satisfied will you be forwarded for payment. As soon as payment is completed, you will receive your loan agreement.

The loan agreement becomes legally valid by the lender and borrower signing and dating the document. You can sign easily and securely with NemID or MitID.

Your loan agreement will then be valid and thus there is no requirement for registration, knowledge of witnesses, legal assistance or the like.

Get started today by pressing ‘ Order Family Loan Agreement now ’ below.

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