The economic crisis is hitting households hard. As a result, financial institutions are becoming increasingly reluctant to grant financing. Loans between individuals are becoming a preferred alternative for many people.
First of all, among friends or family members, these “private loans” often occur outside of any formal agreement, making it difficult for the lender to prove their existence. Our legal expert reviews the different ways to protect yourself in case relations with your borrower deteriorate.
An authentic act or under private signature
The authentic act is a written document executed before a notary that has probative value that is difficult to challenge. The act under private signature is a simple written agreement between the lender and the borrower.
In both cases, the full identities of the parties must be indicated, as well as the place and date of the contract’s conclusion. It will be useful for the contract to mention the amount loaned, the means of transferring said amount, the repayment terms, the legal interest rate, the duration, and the purpose of the loan. It is always preferable for the borrower to expressly declare having received the loaned amount.
All parties must sign the contract, preceding their signatures with the phrase “Read and approved.” The contract must be drafted in as many copies as there are parties.
For example, if you decide to lend €20,000 to your cousin who is married under a community property regime, three signatures will be required. Yours, your cousin’s, and your cousin’s spouse’s. It will be necessary to establish 3 original copies, and each party must have their own.
A debt acknowledgment
Another way to formalize the loan is through a debt acknowledgment. This is a unilateral written act by which the borrower acknowledges owing a sum of money to another person, the lender. The debt acknowledgment does not necessarily have to be drafted before a notary. It can therefore be a simple act under private signature.
In principle, the acknowledgment must be written entirely by the borrower’s hand and kept by the lender until the full repayment of the borrowed amount.
In the event that the acknowledgment is not entirely handwritten, it is necessary for the borrower to write by hand the phrase “good” or “approved” with the amount indicated in full words.
The debt acknowledgment must, of course, be dated, signed, and mention the full identities of the parties. The parties are free to add other mentions such as the interest rate or repayment terms. It is not required for the acknowledgment to mention the cause of the debt.
Recommendations for a loan between individuals
Finally, we can only recommend that you adhere to the formal rules surrounding the drafting of the aforementioned acts. Otherwise, they may be reclassified by the judge or simply declared null.
You will then have a hard time proving the existence of the loan, except based on repayments already made or based on any correspondence by which the borrower confirms the existence of a loan.