What are the advantages and disadvantages of family loans?
Family loans can provide access to cash to family members who need help, but there may be some legal and emotional pitfalls. Those who are considering loans to family members should have clear loans to determine expectations for all parties and may want to investigate any investigation before the transfer of funds. Like a commercial creditor, a family member wants to be sure that the loan can be repaid and should limit the amount of money offered if a large loan is of trouble. Can help cooperate with an accountant or lawyer in the development of the contract. This could include money for an emergency situation or means not provided by a conventional creditor. Alternatively, people would have access to financing in other ways, but they could prefer lower interest with a loan from a family member. Some may use borrowed funds to pay off debts, make a home on the house, buy a car or participate in other activities.
One potential problem with family loans is emotional. Lending money can create a different energy dynamics, especially if it is an older family member who borrows from the younger one. The loan repayment process could be fulfilled emotionally, especially if there is a problem that requires a suspension of payments, or if a family member does not pay the money at all. Fragile family relationships do not always survive the loan that has spoiled.
There are also legal and tax issues with family loans that should be carefully addressed. Tax authorities may consider a loan as a gift, in which case the recipient must pay taxes. If it is explicitly a loan, there is a chance that the creditor can be charged with an "imputed interest". Tax agencies assume that all loans come up with interest at least at the market rate. Although the loan can decide that interest has been paid, in which case the creditor owes itTaxes, because interest is a form of income.
People who are considering family loans should sit with the debtor to discuss the amount and how it will be used. They may also develop repayment conditions, including interest if the creditor wants to charge interest. This information can be used to create a clear contract documenting the fact that money is a loan, not a gift that is expected and that both parties are obliged. One option to consider is to require a share of protection asset, such as the car name sharing until the loan is repaid.