Are you lending money to anyone? Draw up a contract about it

Quick summary

• An oral agreement may be valid, but the evidence tends to be very weak.
• In the case of money, it is typically a loan agreement, not a loan.
• Without a well-set maturity date, interest and penalties, the debt is harder to collect.
• A written contract protects both parties and prevents disputes about what was agreed.
• Statutory default interest applies unless the parties agree otherwise within the bounds of the law.

When lending money between people, it pays to draw up a written loan agreement even if family or friends are involved. The contract should specify the exact amount, the date and method of repayment, any interest, penalties for default and identification of the parties. Failure to specify the repayment date may make repayment unnecessarily contentious. In 2026, statutory default interest at the CNB repo rate plus 8 percentage points will still apply in the event of default.

Need a contract drafted or reviewed by a solicitor? We will be happy to arrange for a bespoke contract to be drafted for you.

Loan or borrowing?

Loan or loanagreement? Is there a difference? Basically, they are 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.

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:

1. the loan agreement should contain a precise specification of the item to beborrowed and its quantity,
2. the period of repayment and the method of payment,
3. the amount of contractual interest and default interest, if any,
4. penalties in the event of default by the borrower,
5. the date and signatures, which should ideally be certified.

Even between friends or family, a loan agreement is worthwhile because it prevents any misunderstandings and disputes.

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 is concluded for the lending of money, 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.

A loan agreement will protect your assets

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.

Example from our law practice

Mr. Vondráček lent CZK 180,000 to an acquaintance to renovate his flat. He sent the money by wire transfer and they agreed only through messages that the amount would be repaid in instalments. Initially, the borrower paid for a few months, but then he stopped and started claiming that it was just a friend’s help without a fixed agreed repayment. The client feared that without a formal contract he would not be able to collect the money.

In practice, we first went through the bank transfers, the communication between the parties and the follow-up reports on the repayments. It is often from these that it can be deduced that it was not a gift but a loan. We then prepared a pre-action notice with an exact quantification of the amount owed and a warning of the consequences of default. Before the lawsuit was filed, we managed to negotiate a written acknowledgement of the debt and a new repayment schedule. This case also showed that a well-set up contract at the beginning is usually significantly cheaper than a later dispute.

If you are lending a larger amount, sending money outside of your immediate family, or if the borrower has already defaulted once, it makes sense to have an attorney prepare the loan agreement. The cost of a well-crafted contract is usually negligible compared to the risk of default.

Summary

When borrowing money, it is legally correct to talk about a loan, although in common parlance people continue to use the word loan. It is in such relationships that it pays not to underestimate the value of a written contract. It is not just a formality, but often a key piece of evidence as to whether and on what terms the money was actually given. The contract should therefore always clearly state the amount, the date on which the money was handed over, the repayment period, the method of repayment and any interest or penalties.

Unless the parties expressly agree on interest, a money loan is interest-free. However, this does not mean that the borrower’s default is without consequences. If the money is not repaid on time, statutory default interest, set at the CNB repo rate plus eight percentage points, will still apply in 2026. For larger amounts, repayment schedules or corporate loans, it is therefore worth preparing the contract individually and thinking about its settings in advance. In practice, it is still true that the cheapest dispute is the one that is avoided by a well-written contract.