This agreement was signed and dated on the day – although interest rates may conflict with the original intention of offering the loan to a family member, they are a necessary evil to maintain professionalism. First of all, like all other institutions, you will be doing your money a favour by calculating an interest rate, because it would have earned a decent interest if it could have been used in a different way. In this way, you can compensate for any losses that may occur during the term of the loan. However, it is important not to set credit limits beyond the IRS thresholds. This is because you have to pay a tax as soon as that threshold is reached. To avoid this, use the current federal tariff, which is offered directly by the government. This will not only ensure that you get a decent interest rate, but also, you will not be subject to any form of taxation. Many consider a handshake between family members to be an enforceable contract. But for the IRS, they believe that money transfers between family members are gifts, unless there is evidence that comes in the form of a family credit contract. To ensure the legality of your loan, follow the following steps: For more information, please see our article on the differences between the three most common credit forms and choose what is right for you. Interest is a way for the lender to calculate money on the loan and offset the risk associated with the transaction. Use the LawDepot credit agreement model for business transactions, student education, real estate purchases, down payments or personal credits between friends and family.

The use of a loan agreement protects you as a lender because it legally requires the borrower to repay the loan in regular or lump sum payments. A borrower can also find a loan agreement useful because he spells the details of the loan for his files and helps keep an overview of the payments. In this short blog, we provide you with a template for a free family credit contract. But if you pass on money to a family member, you are already giving up the potential interest income.