Borrowing and lending

Chapters of the article

• Borrowing Agreement
• Loan agreement
• Where you can meet the borrowing and lending agreement

Loan agreement

In the case of a loan agreement, this is a free temporary loan of an unusable item. Unusable in this context means a thing that cannot be used, only enjoyed. In this case, the borrower does not become the owner of the item, but has only borrowed it. This could be, for example, real estate or a machine. It is also important that the lender cannot ask for payment for the borrowing, whether in the form of money or perhaps some kind of consideration.

The loan agreement may specify the period of validity of the loan. This may be a specific date or an event that is to occur in the future. An example might be when your car breaks down and you get a replacement from the garage. The loan agreement then lasts until your car is back in service.

However, the loan agreement does not need to include a duration date at all, but in this case the purpose of the loan must be included in the agreement. Once this purpose is fulfilled, the loan ends and the borrowed item should be returned as soon as possible. In this case, for example, the borrowing of a mixer from a neighbour for the purpose of building a wall. Once the wall is completed, the borrowing should end and the mixer should be returned.

There are certain obligations on the part of both the borrower and the lender:

Obligations of the lender

The lender must deliver the item to the borrower in a condition that allows its proper use. In the event that the item has a defect of which the borrower had no prior knowledge, the lender must compensate for the damage caused. In addition, the lender must also inform the borrower how to handle and use the borrowed item.

Obligations of the borrower

The borrower must use the borrowed item in the manner specified in the contract. However, if the manner of use is not specified, the borrower must use the item in a reasonable manner so as to avoid unnecessary wear and tear or damage. In addition, the borrower is obliged to bear the costs of using the borrowed item (e.g. petrol for the operation of the car). The only exception is for extraordinary costs (e.g. the cost of repairing a fault in the car). Last but not least, the lender must not transfer the item to a third party for use without the lender’s consent.

Loan agreement

A loan agreement, unlike a borrowing agreement, relates to a usable item. A loan agreement therefore consists in the lending of a usable thing with the proviso that the same thing, but of the same kind, is not returned on termination. Therefore, because of the nature of the thing lent, the borrower becomes the owner of that thing. In this sense, a usable item is an item which can be used and thus consumed. It is therefore, for example, money, building materials or foodstuffs. Consequently, the same thing cannot be returned because the money is spent, the building materials are used to build a house and the food is eaten. Therefore, another thing of the same kind is returned.

It is also important to note that the loan may or may not be chargeable. If it is chargeable, the money lent is returned with interest or, in the case of material things, the thing is returned in a larger quantity or of a higher quality corresponding to the interest.

The duration of the loan may be specified in the contract, but it is not necessary. If the duration is not fixed, the contract is terminated with the termination of the contract. The notice period is set at 6 weeks. However, it is possible to set the notice period in the contract according to the needs of both parties.

Where you can meet the borrowing and lending

As we have already mentioned, borrowing refers to unusable items. You may therefore encounter it in situations where you borrow tools or property. Often the loan will involve cars or land.

Car loan agreement

You may come across a car loan agreement, for example, in the case of a replacement vehicle. This may be provided by a garage while your car is being repaired or by your insurance company in the event of a car accident. You may then want to draw up a loan agreement yourself, for example if you want to lend your van to a friend for a move. You may think that a contract is not needed for something like this, but it is always better to protect yourself unnecessarily than to regret it later.

A car hire agreement should contain some basic information:

1. Identifying information of the borrower and lender: specifically, name, date of birth and place of residence.
2. Theexact specification of the car: Model, year, color, license plate number and vehicle identification number.
3. Specification of the purpose and duration of the loan: The contract should state for what purpose you are borrowing the car and for how long. For example, for the purpose of moving from address X to address Y for the period 20-22 February 2024.
4. Other rules: The contract should state any other rules.
5. Description of condition: The contract should also describe the condition of the car and any defects.
6. Place and time of return: It is a good idea to specify in the contract the date of return and the place where the return is to take place.
7. Penalties: These do not necessarily need to be included in the contract, but it is good to have them there in case there are problems. Penalties can be specified, for example, in the event of a late return or a return in poor condition.

Land loan agreement

You may encounter a land lease agreement mainly in the case of public land or land owned by municipalities. Usually, these lands are borrowed for use by various associations or even private individuals for the purpose of improving the land or beneficial use of unused land.

Even a land loan agreement should contain some basic information:

1. Identification details of both parties
2. The subject of the loan: in the case of land, the parcel numbers and cadastral area should be given. If the loan concerns only a part of the land, it is necessary to specify this part precisely, e.g. by means of a drawing of the land.
3. Purpose and duration: The land is borrowed for a specific purpose, which should be described in the contract. For example, this may be the purpose of using the land to operate a communal garden. The duration does not have to be specified, but may be.
4. Other rules: the contract may include other rules that both parties must follow. For example, a prohibition on certain encroachments on the land or the lender’s right to inspect ongoing work on the land.
5. Termination terms: The contract should also include rules for termination and a specification of the notice period.
6. Penalties: Even in the case of a land lease agreement, penalties for non-compliance may be provided for. E.g. penalties for unauthorised alterations to the land.

Loan from a non-bank company

You may encounter a loan especially in interpersonal relationships. For example, when you borrow money from a family member or a neighbour lends you the missing flour for a cake. However, you may also encounter loans from non-banking companies.

Many non-banking companies are licensed by the CNB to provide consumer credit and are therefore regulated by the CNB. This makes these companies among the more reliable and less risky ones. On the other hand, there are also non-banking companies that do not have this licence and therefore lend money through a loan. We advise you to stay away from these companies. You may be very unpleasantly surprised by unclear contract terms, hidden fees, extreme interest rates and high penalties for non-payment.