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FAQ

LOANS BEST PRACTICE (5)

Your loan agreement should include how much the loan is for, the interest rate, what the money is to be used for, clear repayment terms, what will happen if you fall behind or miss a payment (such as a late fee), and signatures from both parties.

When considering committing to giving or receiving the loan, think about how you or your friend/relative will pay back the money. Consider the realities of your relationship with the person and ways can you safeguard yourself from anything going wrong in relation to money. Do you have a loan contract and a reliable way to track repayments without emotions being entangled?

Yes. Charging interest on a loan is important because it sets up the agreement as something other than a gift or a handout. Interest can also make up for differences in inflation between the start and the end of the loan. The interest rate for a personal loan to give should be determined by the length of repayment and any national government approved interest rates for family loans. The annual limit for tax-free gifts to family members in Australia is $14000, so especially when you loan is beyond that, should you charge interest.

A breakdown in a personal relationship when you have financial commitments can be tricky to navigate. You can get free legal advice if something goes wrong, otherwise try to maintain a civil relationship and deal with your mutual obligations. Using Credi, or some other loan documentation service will protect both of you if the relationship does break down.

Charging interest on a loan is important because it sets up the agreement as something other than a gift or a handout, and can also account for inflation. The interest rate for a personal loan to give should be determined by the length of repayment and any national government approved interest rates for family loans (if any). The annual limit for tax-free gifts to family members in Australia is $14000, so especially when you loan is beyond that, should you charge interest.

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