Loan or borrowing?
Loan agreement or loan? Is there a difference? Basically, it is the same thing. The only difference is that the New Civil Code has introduced the term loan agreement instead of the old loan agreement. However, people continue to use the term “loan”. However, whether we are talking about a loan, a borrowing, a credit or a loan, these are contractual types where an item is given to someone else for use.
You don’t just have to enter into a contract to lend money, but you can also lend any movable item. In such a loan, you must return the item of the same type as the one you have been given to use. It does not matter whether its value has risen or fallen in the meantime. It is also a negotiable debt, which means that it is payable at the place of the debtor, unless otherwise agreed.
Instead of interest, there is the possibility of negotiating the performance of a reasonably larger quantity or of a thing of the same kind but of better quality.
The goods are always generic, i.e. e.g. building materials or gold. If it is an individual item, such as a car or a painting, it will not be a loan but a lease or a loan agreement if it is free of charge. Thus, there is no contract for the loan of money unless it is specific rare coins or notes.
The form of the loan agreement is not prescribed by law.
Contract for the loan of an item
A loan agreement is always for a specific item where you subsequently ask for the same item back (your car, guitar or laptop). It can only be concluded verbally, but it is of course advisable to conclude it in writing in case the person to whom you have given the item does not want to honour his/her commitment. If the loan agreement is in writing, you can enforce your rights in court if there are problems.
You will then have no way of proving that you actually lent the item or money to the person. Even if we are talking about a loan between friends. So at least a simple contract is always useful.
A well-drafted loan agreement can include not only the amount borrowed and the repayment terms, but also the penalties for default.
Specifically:
- the loan agreement should contain a precise specification of the item to beborrowed and the amount,
- the period of repayment and the method of payment,
- the amount of contractual interest and default interest, if any,
- penalties in the event of default by the borrower,
- the date and signatures, which should ideally be officially certified.
Even between friends or family, a loan agreement is worthwhile as it avoids any misunderstandings and disputes.
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Loan agreement from a professional
If you are lending a valuable item or a large amount of money, a loan agreement should be a matter of course. Even among close friends. The contract will set fair terms and everything will be in black and white. We will be happy to advise you individually.
Draw up a contract by a lawyer
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Money Loan Agreement
According to the Civil Code, when a fungible thing is given for use and then returned, it is a loan contract.
If a future contract for the loan of money is concluded, it is a so-called bearer debt. This means that the borrower is obliged to perform it at your place of residence and must likewise repay it in the local currency.
Provided, of course, that you do not agree otherwise. For example, if the borrower wants to repay the money in a currency other than the one he received, he must repay it in an amount equal to what he received from the lender. Unless you explicitly agree interest on the loan in the contract, the loan is interest-free. However, you can explicitly agree on the interest. The person who owes you money is obliged to return the money borrowed at the end of the agreed period and pay the extra interest as stated in your money lending agreement. However, if interest is not expressly agreed, it is an interest-free loan agreement.
But be warned, if the debt is not paid properly and on time, you, as the person who lent the items or money, can claim interest on late payment. The amount of this interest is set by government decree and corresponds annually to the repo rate set by the Czech National Bank for the first day of the calendar half-year in which the default occurred, plus 8 percentage points.
In this context, the case law of the Constitutional Court states that excessive interest is generally contrary to good morals and unenforceable, even if you have agreed on it in the contract, for example, because of the delay. Such a threshold is usually an interest rate of 0.5% per day.
Interest-free loan agreement for the company
A contract to lend money can also involve companies. A common situation is when a shareholder lends funds interest-free to his own company to bridge a temporarily difficult financial situation. The advantage is that this has no tax implications.
Again, we recommend that the contract for the loan of funds be in writing, although it can of course only be concluded verbally, as in the case of a normal money transfer agreement, which can prevent unpaid invoices.
Of course, it is possible to conclude a loan agreement with interest. The interest will be a tax deductible expense on the part of the company if the purpose of the use of the funds is met and the conditions of the Income Tax Act and related regulations are complied with.
Repayment of the loan
The loan agreement may also specify the time when the loan must be repaid. However, if you do not stipulate this in the contract, the notice period is 6 weeks. In addition, if you have entered into an interest-free loan agreement, the loan can be repaid without notice. There is also the option of repaying the loan in instalments, which the loan agreement and the repayment agreement will allow. If you have agreed this between you, you can cancel the contract and demand repayment of the debt with interest when the borrower defaults. In this case, we consider a default to be a situation where, for example, the borrower has been late in repaying more than two instalments or where one instalment has not been repaid for more than three months.
Summary
The loan agreement is a key document that protects both the lender and the borrower and helps to avoid disputes when returning borrowed money or items. Although the law does not prescribe a compulsory written form, it is always better to draw up a contract so that it is clear what both parties have agreed. The contract should state the terms of repayment, any interest and penalties for default. If no repayment is stipulated, the money can be reclaimed after a notice period of six weeks. In the case of a business loan, the loan agreement may include an interest-free option which has no tax implications.
