If you want to participate in a loan you should know about the types of loans available. In this guide we will teach you the different ways to develop a law-and-binding contract for both parties. We’ll specify the terms of the operation and thereby avoid possible future misunderstandings.
Definition of loan contract
A loan is the financial transaction in which an entity or person lends to another a fixed amount of money at the beginning of the transaction. The one who receives the money must return that amount within a given period. Sometimes, he will also have to pay interests.
Then, two parts are involved in the loan:
- The lender, person or company that lends the money.
- The borrower, who needs the money.
Types of loans: simple loan and commodate
We can find different types of loans. According to the situation we will use one contract or another:
- Commodate: If you lend a certain thing to use for a period to be returned once the deadline is fulfilled.
- Simple or mutual loan: If you lend money or something else, with the condition of returning a quantity of the same species and quality.
Let’s take a closer look at the characteristics of the different types of loans:
A simple loan is lending money or something on the condition of returning the same species, quantity and quality, in a time. The loan is reflected on a contract. It is common for the transaction to be guaranteed. If remunerative interests are agreed, they are charged for the total amount of money borrowed. Although our civil legislation also allows to make a loan free of interests:
- The loan will be simple and free when the borrower is not obligated to pay any consideration for what is received.
- It will be a loan with interest when paying a fee consisting of an amount of money or other assets. Payment of interest will vary depending on the length of time the loan is paid. The applied interest rate may not be less than the legal interest of the money, nor greater than 2.50 times this. For example, if the legal interest in the year 2018 is 3%, at most you can agree an interest of 7.5% (3% x 2.50% = 7.50%).
The return of the loan is usually done through regular fees (monthly, quarterly, semi-annually…) or in a single fixed period. Therefore, the operation has a previously determined life.
When lending money to a company or self-employed, the lender must be a professional to retain the VAT. That it is because they are obliged to declare VAT. The tax agency model number is 036.
The commodate contract is a contract in which one part gives to the other one thing to make use of it for a stipulated time. This transaction is free of charge. After that time, he must return it in the same state as it was received. If there was established a payment of a fixed price, we would no longer be talking about commodate, but about leasing.
Documentation to be considered when celebrating a loan contract
To avoid further problems, we recommend making the following provisions:
- Document the loan in writing. To do this, please use our loan contract model.
- If interest is agreed, the loan must be formalized by delivering the written document in the Treasury office of our Autonomous community. This procedure is tax-exempt, which means that it will have no cost to the parties.
- Document the delivery of money from the lender to the borrower (through bank transfers, payroll checks, etc.). The deadlines for return or repayment of the loan must also be documented.
This will prevent future complications. We will also ensure that everything is collected and justified for the public institutions.