Loan Agreements in Ireland

the O Reilly connection

Hi

I was wondering what the law is in relation to loan agreements in Ireland? For example, if an individual decides to lend money to another, and both agree on a personal loan in writing, is the loan agreement required to have certain provisions for it to qualify as a loan?

Thank you

Peregrinus

https://www.boards.ie/discussion/2058367777/loan-agreements-in-ireland

No. Even if you have no written agreement at all, a loan is a loan.

If you're carrying on a business of making loans to people, that business is regulated (and you need a licence). But you make a one-off loan to a friend or family member? No regulation at all, and no requirement to put anything in writing. (It would be wise to have a written agreement, to ensure that both parties have a shared understanding of what is to happen, but there is no law requiring. If you want to lend your money without any agreement in writing to repay, you are free to do that.)

Mr Disco

https://www.boards.ie/discussion/2058367777/loan-agreements-in-ireland

are you making the agreement under common law or maritime law?

the O Reilly connection

https://www.boards.ie/discussion/comment/122587536#Comment_122587536

What happens if you charge 20% interest? Is it taxable on return?

Peregrinus

https://www.boards.ie/discussion/comment/122592688#Comment_122592688

If you make a loan and charge interest on it, the interest you receive is chargeable to income tax at your marginal rate. it doesn't matter whether the loan is to a friend or a stranger, and it doesn't matter whether the terms of the loan are recording in writing or not. It's the fact of receiving interest income that gives rise to the tax liability.

Obviously there's a point at which the transaction is so informal, and the amount of income it generates is so nominal, that nobody really cares. But, as a matter of strict law, interest income is chargeable to income tax; there's no fixed amount below which interest income is ignored; and whether the loan agreement is in writing or is purely oral is irrelevant.

the O Reilly connection

https://www.boards.ie/discussion/comment/122594080#Comment_122594080

What happens if the lender dies? Can his successors enforce the loan?

Allinall

https://www.boards.ie/discussion/comment/122597362#Comment_122597362

Yes.

It's the executor's job to collect all monies due to the deceased, and discharge any liabilities.

Peregrinus

https://www.boards.ie/discussion/comment/122597362#Comment_122597362

In principle, yes. As Allinall says, the executor's first job is to get in the assets of the deceased, which means collecting the amount due on the loan.

But, two potential problems:

First, if there's no written loan agreement, collecting from the borrower can be problematic. If the borrower is a decent, honest and honourable person they won't dispute the loan, or the fact that they owe money. But if they're not — if they deny that they were advanced money, or assert that the advance was a gift — the executor is in difficulty. How is he going to prove that a loan was made, and that repayment is due? If he had to go to court, what evidence would he have? If the borrower disputes their liablity to pay and the executor reckons he couldn't succeed in enforcement proceedings, he's entitled to abandon the loan; he has no duty to throw good money after bad.

(This is one of the (many) reasons why, although there is no legal requirement to get the borrower to sign a loan agreement, it's a good idea to get the borrower to sign a loan agreement.)

The second problem may arise if there is a written loan agreement. The executor can only enforce the loan in accordance with its terms. The loan agreement might say, e.g., that the loan is repayable five years after it is advanced. If the lender dies after three years, the executor can't insist on repayment of the loan. He can continue the administration of the estate for another two years and then seek repayment, or he can assign the benefit of the loan to whoever would be entitled to the money if the money were paid, and they can enforce the loan when the full five years has elapsed. But neither of these is an ideal solution.

(You can avoid this problem by providing, in the written agreement, that the loan is repayable after 5 years on on the death of the lender, which ever happens first. Which is why it's a good idea not only to get the borrower to sign a loan agreement, but to put a bit of thought into what the loan agreement needs to say.)

the O Reilly connection

https://www.boards.ie/discussion/comment/122599458#Comment_122599458

That's great. Thank you for your help!