Personal Loan

A personal loan is not a gift. There must be at least two entities to constitute a personal loan. The lender & the borrower. A personal loan is an exchange of any item where the lender has a reasonable expectation that the item will be returned by the borrower as opposed to a gift where that reasonable expectation doesn't exist.

Most of us think of a personal loan as money that we obtain from a family member, friend, or financial institution and that it will be repaid. In the case of a financial institution, we usually have a contract that spells out the terms and conditions of the loan and we assume that interest will also have to be repaid. Be aware that interest rates vary from one financial institution to another and there are many reasons why, therefore it behooves us to shop around for the best deal when looking for a personal loan from a financial institution and by using our expert loan advice you can expect to gain fast approvals.

Ultimately when dealing with a family member of a friend, there may not be written contract involved in a personal loan unlike there is when the personal loan originates from a financial institution. Even if the personal loan is with a friend or family member, unless it's presumed a gift, there should always be a contract of sorts because without one, a lot of confusion can unfold over time.

While the meaning of a personal loan seems obvious, the courts are full of cases where the lender thought it was a loan, but the borrower believed it was a gift. If you do not have a contract when an individual borrows something from you, but you have a reasonable expectation that it will be returned, than to you, that is a personal loan. However, if the borrower believes it is a gift and that it doesn't have to be returned, it becomes more of ambiguous exchange and many legal battles are started that way. Therefore, if you loan someone something of value and you want it returned, you should have a written or at the very least a verbal contract outlining at the very minimum that there is a meetings of the minds that the borrower is going to return the item and a date by which said item should be returned. That way you can try and avoid any misunderstandings, after the fact, as to whether it was a personal loan of a gift. Without a written contracts are best as without one, it can turn into a he said, she said type of situation. Sometimes, it just doesn't feel right to ask your neighbor to sign a document over a screwdriver, but a clear and concise fast discussion claiming ownership of the screwdriver and letting the borrower know that you want the item returned back by a certain date can save a lot of headaches down the road.

If something is loaned with no real return date, it could be considered a gift. That happens many times when family members loan money and say "pay me back when you can afford it". Whether it should be returned may fall under the reasonable expectation. Did you reasonably expect that when your family member could afford it, that they would pay you back, or were you just hoping that they would? If you were just hoping and didn't really know or care, it may be that it could be considered a gift, especially if the borrower never had an expectation to pay you back. However, if you don't reasonably expect the item to be returned, than that would not be considered a personal loan, but rather a personal gift. We have all heard of family members supposedly loaning money to each other, but thinking to themselves, “I'll be fortunate to get it back”. That is because the money loaned was really gifted and if the gifter gets the money back, they will consider that payback a gift as well. That’s a big difference from when a neighbor borrows tools and you expect to get the tools back. There is no question, unless your neighbor is more than just a neighbor, wink, wink, that the lending of the tools to the neighbor is a personal loan and there is a reasonable expectation that the items will be returned.

While many financial institutions have personal loans with payback periods from 3-7 Years, a personal credit line can be open virtually for ever (so long as you keep it active). If you leave one dollar in your loan account, it should remain active indefinitely. Personal loans or unsecured personal line of credit are a good alternative to home equity loans, since so many of us can no longer get equity out of our homes for one reason or another. You may still qualify for personal loans or personal line of credit to plan your dream wedding, or perhaps the vacation of a lifetime, anniversary gifts or a host of other products or services that you can purchase anytime. Once you received your funds from an unsecured personal loan approval or line of credit acceptance, you’re welcome to spend your funds anyway or on anything that you wish!

So, good luck when seeking a personal loan from a financial institution, and be careful when you give a friend or family member a personal loan. Make sure that it's not a gift. Read more about Personal Loans Amounts to Apply For. Don't OverSpend -Read: Personal Loan Spending Limits.

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