Secured Loan Against a Private Individual – or is it possible?
Borrowing from a credit institution or business is not always the best option. There are situations when money is ready to be lent by a loved one – friend, relative or acquaintance. These people are willing to take the risk by supporting their financial resources. One way to mitigate the risks of the lender is to enter into a pledge agreement with further action in case the debtor fails to repay the money within the set time limit.
When choosing such a collaborative model, the potential risks must be carefully assessed by both parties. Both sides must be fully convinced of the motivation of the other party. You also need to be aware of the fact that not only money is invested in lending money, but also friendship and the latter can not be recovered.
We all know that borrowing money is easy, but repaying it is much more difficult, sometimes even impossible. When concluding a loan agreement with a close person, everyone should take into account that he or she may see his / her money last time. If you are not ready to donate money simply, you should not lend it. Consider how to deal with a situation where the debtor will not be able to fulfill his contractual obligations. Are you really ready to go to court or to debtors to take over the pledged property, movable or immovable property? Most would most likely respond negatively because they could not take away a friend’s house, car or land. If you are not ready to fully exercise your contractual rights, then you do not need such a contract at all and you can issue a loan without signing a contract. It should be noted immediately that the State Revenue Service (SRS) can treat such loans without a contract as gifts and, if it comes to light, may require the borrower to pay the resident income tax. Of course, if the amounts are not large and if such information does not appear anywhere, then nothing will be possible, but this option should always be kept in mind.
For those people who are willing to fulfill their contractual obligations, it may seem that the opportunity to lend money against a real estate or vehicle collateral will be more costly. The first of these options can be formulated with great legal precision, incl. to a notary and to consolidate the mortgage in the Land Register. With regard to the second option, the scope for action is not so great, because, firstly, the car can be more easily concealed if necessary. Secondly, the vehicle can be divided into parts and sold in parts. All this leads to the conclusion that a loan against a car may not be an option worthy of a contract.
In situations where the borrower is neither a car nor a real estate, you can try to lend money against a security pledge, against the company’s shares, copyrights or shares. Money lending for valuables or home appliances is not a meaningful measure, because it is very difficult to exercise your rights against the debtor in an emergency.
How to conclude a contract correctly?
If you are not a lawyer, the best way to protect yourself from risks is to find a qualified lawyer. Accurately and correctly drawn up contract protects both parties from different risks. Yes, it will probably cost hundreds of euros and are expensive but will probably pay off in the future. Different contract templates can also be found on the Internet, but they may not reflect the terms of the current laws.
According to the Civil Law, oral agreements are also legally binding. Unfortunately, Latvia’s practice proves that in a conflict situation one word is placed against another and that the protection of one’s rights even in court can be very problematic. In writing, ideally, a contract with a notary is much more secure. On the other hand, we have already mentioned that lending money to a private person is worth concluding only a contract that you will be willing to use. In many cases, it is much more realistic and easier to understand how much credit is paid on the Internet or in a bank, especially if you have doubts about the good faith of the other party and you are not very wealthy.