A subsidized loan is for students who go to school, and their right to glory is that there is no interest while the student is in school. An unsubsidized loan is not based on financial needs and can be used for both students and higher education graduates. Tax considerationsThe agreement on paper protects you and your lender come tax time. Confidence in informal and oral agreements leads to fiscal whirlwinds. „In these cases, you have a burden of proof to show the IRS that [the money] was not a gift,“ says Tom Ochsenschlager, vice president of taxation at the American Institute of Certified Public Accountants. If the IRS considers this a gift because there was no intention to repay it, then the lender is subject to federal donation tax rules and must pay taxes on the money if it exceeds $13,000. Also make sure that the person providing the money calculates an interest rate that reflects fair value. Indicating when you need to make payments is important to ensure that you stay in the schedule for payment of the loan. It will also be important to know the payment dates if you want to assess penalties for late payment. The interest on a loan is paid by the state from which it originates and it is subject to the usury rates laws of the state. The usury rate varies from each state, so it is important to know the interest rate before the borrower is subject to an interest rate. In this example, our loan comes from the State of New York, which has a maximum usury rate of 16% that we will use. A loan is not legally binding without the signatures of the borrower and lender.
For additional protection for both parties, it is strongly recommended that two witnesses be signed and that they be present at the time of signing. Relying only on a verbal promise is often a recipe for a person who gets the short end of the stick. If the repayment terms are complicated, a written agreement allows both parties to clearly define all the terms of payment and the exact amount of interest due. If a party does not respect its side of the agreement, the written agreement has the added benefit that both parties understand the consequences. You may have bypassed the bank by getting a loan from your family or friends, but you should always treat the situation as strictly professional. The written implementation of the agreement protects not only both parties, but also your relationship. After all, borrowing money is not the same as lending the car. Too often, entrepreneurs take the time to know what kind of paperwork should be done with family or friends.