Simply put, consolidating is taking out a considerable credit to repay many other credits with only one payment to make each month. It`s a good idea if you can find a low interest rate and you want simplicity in your life. If you decide that you are asking a family member or friend for money, you should treat this credit with as much professionalism and courtesy as you would with a professional lender. Be sure to ask for a contract. If you are applying for the money and the friend or family member accepts the loan, your interview must cover the following: the use of a loan contract protects you as a lender because it legally imposes the borrower`s commitment 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. Depending on the credit score, the lender may ask if guarantees are required for the approval of the loan. An individual or business may use a loan agreement to set conditions such as an interest rate amortization table (if any) or the monthly payment of a loan. The biggest aspect of a loan is that it can be adjusted as you deem it correct by being very detailed or just a simple note. Regardless of this, each loan agreement must be signed in writing by both parties.
But if you pass on money to a family member, you are already giving up the potential interest income. These are the opportunity costs of a loan. If you calculate interest, you make up for that loss. Even if you lend to a family member, you can of course charge interest. Agree on an interest rate for the loan and the exact method you want to use to calculate the interest on the loan. If both parties agree not to collect interest, you should also include it in the credit terms. For example, an employee of your local bank is an excellent choice to use as a third party`s witness because he has no personal interest in how the loan is recovered or in the loan itself. There is also the possibility of suring it by an official notary. Sarah Brown accepts a tax of $5 per day for all late payments until the full loan is paid on March 25, 2021.
One of the most neglected areas of family credit contracts is tax implementation. This is because most people neglect the fact or do not know that family credits are also taxed on the basis of interest. It is therefore of absolute importance for individuals to lend amounts that do not exceed the IRS tax threshold. If the lender wants to separate the loan from a gift, there is a minimum interest rate. This minimum should be charged to allow the IRS to distinguish between a gift and a loan. Your family member or friend may choose to calculate at least this minimum rate. This generally ensures that the loan is considered a loan. However, it is important to note that family credit contracts are completely unsecured, since the person lending the money is a family member or close friend.
This means that there are no assets as collateral in case the family member does not repay the money. So how can you get your money back if the family member or friend doesn`t respect the agreement? Well, the only solution you will have is to go through a lawsuit or a small appeals court.