loan between private relatives

Is there a loan between relatives and if so, what are the tax implications for both parties? Does a loan from a bank suit you more than a loan from a friend? What should you pay attention to in order to conclude a loan agreement outside the banking system?

If you need money and have an interest-free loan between relatives as an option, it is definitely worth considering seriously. But under what conditions does such a loan work & what can arise?

Questions & answers about the loan between individuals & relatives.

#1 Is the loan between individuals legal?

Yes, the loan between individuals is legal. Greek legislation allows it, as long as you have signed the loan agreement between individuals.

#2 How is lending done between individuals?

As we said, you will have to sign a personal loan loan agreement. This private agreement is submitted to the tax office and you pay a stamp duty of 3.6% on the amount.

The terms that govern the loan between individuals are free, that is, you can agree anything with the other party and there is no specific model that you must follow. E.g. the loan can be interest-free or carry a very low interest rate, lower than what banks give.

#3 Why get a loan from relatives or another private person?

If you need money you have two options – the classic loan from a bank and the loan between individuals / relatives. The most common reasons why someone chooses a private loan are:

  • Because he is excluded from the banking system due to debts.
  • Because the amount he wants to borrow is relatively small and he wants to avoid bureaucratic procedures.
  • Because he considers the interest rates given by the banks to be excessive.

And all this has a very logical basis. We all want lower interest rates (or even completely interest-free loans) with less paperwork.

But again, caution is needed. Good accounts make good friends! So, let's see what you should look out for.

#4 Is there any chance it could cause you problems?

Although it often seems like something very simple, lending between individuals can hide pitfalls, both for the lender and the borrower.

⚠️ A simple example:

Let's say you use the sale e.g. of a property to pay off the loan to your brother or another relative. Let's also say that in addition to the debt to your relative, you also have debts to the State.

If you leave them pending (whether they are debts to the public or other bodies), this action is considered illegal.

📌 Read also: Find the best online mortgage loan & Tips for easier loan approval!

#5 What is the most common form of loan between relatives?

By now you must have wondered: "Is it possible to give 500 euros to my brother and sign a private agreement?".

And the truth is that most cases of lending between relatives concern informal and interest-free loans. If the money has been given in cash and paid back in cash, then we are talking about a transaction that cannot be controlled by the state.

The issue is what happens in the event that the two parties disagree along the way, are separated by legal claims (or one of the two sides passes away, knock on wood).

#6 What interest rate will the loan have between individuals? Can it be interest free?

The loan between individuals can be interest-bearing or interest-free. Once the loan agreement is recorded in a private agreement, it can include any terms agreed upon by the two parties. Nevertheless, the interest rate cannot be abusive.

Empirically, some agree on the average bank lending rate, as it appears from the official data of the Bank of Greece, and others simply agree on some interest rate that they consider reasonable (e.g. in the past the interest rate of three-month Greek Treasury bills was set, however this today is negative).

⚠️ Caution: "The law explicitly states that the interest rate in a loan agreement concluded between private individuals must be in line with business ethics and not be abusive. »

💡 TIP To avoid misunderstandings both between the lender and the borrower (you never know what will happen even if the other party is your brother), as well as with the tax authorities, it would be good to state the purpose of the loan in the private agreement.

#7 What applies to taxation on the loan between individuals?

There are also cases where taxpayers rely on loans taken from private individuals (mainly relatives) to cover the presumptions of acquiring assets.

But when can loans from individuals cover presumptions?

a) when the purpose of the loan is related to the invoked presumption,

b) when the document bears a date recognized by the competent authority,

c) when the loan has been demonstrably obtained before the expenditure was incurred and

d) when it is not considered virtual.

If the above applies cumulatively, the authorities ignore the non-paperwork of the loan and accept the presumption coverage.

#8 What does the Civil Code state (to be legally covered)?

Civil Code (article 806): "With the loan contract, one of the parties transfers ownership of money or other replaceable things to the other, and he has the obligation to return other things of the same quantity and quality."

  • The Civil Code does not define a specific type for drawing up the loan, so it can be written or verbally.
  • If the loan is interest-bearing then the interest will be taxed in the name of the lender as income at a rate of 15%. Taxable interest includes any default interest that may arise from the private agreement.
  • The amount of the loan is considered a presumption of living for the person giving the loan and therefore should be justified by the income of the lender (current or past years).
  • And the borrower will have to declare the amount of the loan paid during the year on their tax return, as well as any interest and/or default interest.
  • The borrower must declare the total amount of the loan on his tax return in the event that the loan is used to cover presumptions.
  • If the loan is interest-free the tax authority can look for imputed interest as income of the lender.
  • If the loan is informal, i.e. oral, without a private agreement, there is no stamp duty obligation. However, if the informal loan has been paid through a bank account and there is a tax audit, then stamp duty may be required.

And if you finally end up with a consumer loan from a bank, you know how to start. Compare free loans on our platform, find out everything you need online, without standing in queues and when you're ready, proceed with the application!