It is a good solution if you want to borrow money but cannot or cannot go to a bank. The fact that you do not go to the bank for money can have several reasons. You already have a loan and cannot borrow, or your income is not high enough to apply for the amount that you have in mind.
If your parents are willing to help you, then with a little cleverness this can also be tax-free, you must then follow the rules and then put this on paper. If you do this properly according to the rules, you can get money in a cost-effective way, of course you also have to redeem it again and you should consult yourself if you can handle this. Therefore, agree it well and record everything on paper so that no misunderstandings arise later.
Borrow money from your parents
There are two different loan types that your parents can give. One in which you will pay interest and the other without interest charges. To keep the loan tax-free, the interest that you do not have to pay per year (notional interest) may not exceed the amount that parents may donate to their children, which is set at € 5,304 for this year. In the example below you will see how this works. By the way, when you provide a loan without interest, your parents must make a declaration with a gift tax declaration.
You borrow 50,000 euros from your parents. According to the guidelines of the tax authorities you therefore receive a donation of 3,000 euros per year, the interest rate used is 6. This is well under the exemption of 5,304 euros. So there is no gift tax to pay.
Now the amount is a lot higher, because you want to buy a house, but you cannot go to the bank for a mortgage. We take an amount of 300,000 euros. The notional interest on this amount amounts to 18,000 euros and is therefore well over the exemption. Everything that exceeds the exemption is taxed with 10% tax.
Disadvantages of borrowing from family
When borrowing from family or friends, there is always a risk of disagreement, especially if not all conditions and repayable installments are not properly recorded on paper. You can therefore wonder whether you want to take this path. However, if you urgently need money and you cannot go anywhere else, it may be your only choice.
Therefore, make sure that all possible problems are prevented by going through everything well and recording it well on paper. Once you’ve done this, let others take a look at it, maybe they can point you to some additions. Also pay nicely to not cause any problems, if you cannot pay once communicate this.
But there are also the benefits
Of course, borrowing from your parents also has advantages. With a bit of luck you don’t have to pay interest and of course no review is conducted and registered with the bkr. Without this registration, nobody knows that you already have a loan and you are still just eligible for the next loan.