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. Private loan contract — For most loans from one individual to another. While loans can be made between family members — a family credit contract — this form can also be used between two organizations or companies that have a business relationship. The state from which your loan originates, the state in which the lender`s business is active or resides, is the state that governs your loan. In this example, our loan came from new York State. A Parent Plus loan, also known as «Direct PLUS,» is a federal student loan that is received by the parents of a child who needs financial assistance for the school. The parent must have a healthy credit rating to obtain this loan.
It offers a fixed interest rate and flexible loan terms, but this type of loan has a higher interest rate than a direct loan. As a general rule, parents would only benefit from this loan in order to minimize the amount of student debt for their child. For more information, check out our article on the differences between the three most common credit forms and choose what`s right for you. For private loans, it may be even more important to use a loan contract. For the IRS, money exchanged between family members may look like either gifts or credits for tax purposes. The loan agreement should clearly state how the money is repaid and what happens when the borrower is unable to repay. If the borrower dies before repaying the loan, the authorities will use their assets to pay off the rest of the debt. If there is a co-signer, it is their responsibility for the debt. If you decide to borrow online, be sure to do so with a well-known bank, as you can often find competitive low interest rates. The application process will take longer because more information, such as your work and income information, will be needed. Banks may even want to see your tax returns. 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.