• mm@WHM

FRIENDLY PERSONAL LOAN TO RELATIVES AND FRIENDS

Updated: Mar 18



Some say you should never lend money to friends or family members. But in desperate times, it can be hard to say no.

In times of financial woes and hardship, a friend or relatives may turn to you for help.  Yes, money maybe lent on a friendly basis but things can be ugly when the borrower fails to return the sum.

Whilst it may appear to be simple straightforward transaction of one person helping another there are several legal aspects that need consideration.

-Agreement

It is advisable to record the terms in writing.

Hiring a lawyer somehow is not strictly necessary, though highly desirable especially if the sum of money involved is substantial.

-Moneylenders Act

Carrying on of a moneylending business without a licence is an offence under section 8 of the Moneylending Act,1951, lending money per se, is not.

Moneylending business carried out without a licence would be illegal and the loan would not be recoverable.

So, giving of loans to friends or family does not constitute the business of money lending unless there is continuity about the transactions and it is done as a business.

Therefore loans to friends and family do not require a license.

-Is it legal to charge interest in a loan to friends and family?

A loan made on a “friendly” basis often doesn’t require payment of interest. However, the borrower may offer to pay some interest and the lender may accept it.

Technically, it is legal to charge interest in a loan to friends and family as long as the lender is not carrying on the business of money lending.

Lending with interest however will raise a presumption and it is then open to a lender to rebut the presumption by showing that although the person has lent money, he is not a moneylender. 

-When is document to be stamped?

Any agreement is to be stamped within 30 days of the execution and for loan agreement it is to be charged with ad valorem duty.

A document which is not stamped or insufficiently stamped is not void or unenforceable for that reason alone. However, such document may be rejected as evidence if it is required to be produced before the Court.

In that event the party who wishes to produce the unstamped or insufficiently stamped document will have to pay the stamp duty payable and penalty before such document can be received as evidence.

-Limitation Period to make a claim

An action to recover the friendly loan would need to be filled within six years of the cause of action. In commercial transactions (banks or other financial institutions), the time when payment is due would be clearly stated.

In a friendly loan when no date for repayment has been stipulated, when does the cause of action arise?

From the date of the agreement / the money loaned?

From the date that the demand of repayment is made?

Specific legal advice may be necessary to determine the exact limitation period on this issue.

However in our Malaysian context, (although it is arguable before court based on the circumstances of the case) the period of limitation begins to run as soon as the money is loaned and/or from the date of the agreement.

Six years from that date, the right to recover any loan will be forever lost.


*Some of the contents are originally cited from @The Star (Articles of Law by Bhag Singh).

6 views

©2020 WHMLawOffice.