Lending money to a relative, a business partner, a tenant in difficulty, a friend without access to bank credit: the transaction appears simple, familiar, almost domestic. It is nonetheless governed by the general law of contracts, which treats it with a rigour many lenders discover only when it comes time to recover the funds. Written proof required from EUR 1,500, usury rules applicable, tax declaration mandatory above EUR 5,000, criminal sanctions for encroaching on the banking monopoly, risk of recharacterisation as a gift in family settings: each of these points can defeat the recovery of a perfectly legitimate claim.
This guide addresses both borrower and lender. It does not promise illusory flexibility – lending between individuals is less regulated than consumer credit, but more so than is commonly believed. We set out the legal nature, the form to observe, the clauses to include, how to verify the rate, the tax obligations, the techniques for securing repayment, and what to know when the debtor does not pay.
A real contract under the Civil Code
Lending between individuals is a loan for consumption (pret de consommation) under Article 1892 of the Civil Code. The borrower becomes owner of the sum disbursed: the money enters their patrimony and they owe restitution in nominal value (Article 1895).
The loan for consumption is a real contract: unlike most contracts, which are formed by mere consent, it comes into existence only when the funds are effectively disbursed. Before disbursement, there is only a promise to lend. Without proved disbursement, there is no loan. A lender who has not kept the trace of the transfer, cheque, or cash payment will have great difficulty obtaining judgment against the borrower, even with a signed document.
The loan is also unilateral: only the borrower is bound (to repay). This explains why a simple acknowledgement of debt, signed only by the borrower, suffices as evidence.
The banking monopoly and its limits
Can a private individual legally lend money? The answer lies in two articles of the Monetary and Financial Code. Article L. 511-5 prohibits anyone other than a credit institution from “carrying out banking transactions on a habitual basis.” Article L. 313-1 defines a credit transaction. From these two provisions, the practical rule: a private individual may lend, including for consideration, provided they do not do so habitually.
Habitual does not depend on a numerical threshold – the law does not say “from three loans” or “above X euros.” It is characterised by repetition, organisation, and the systematic pursuit of profit. A parent lending once to their child or neighbour does not conduct banking activity. A private individual who multiplies interest-bearing loans to strangers, presents publicly as a lender, or operates an organised network encroaches on the banking monopoly and faces criminal sanctions (three years’ imprisonment, EUR 375,000 fine under Article L. 571-3 CMF).
Online “peer-to-peer lending” platforms (Younited, Finfrog, etc.) circumvent the difficulty by themselves holding credit institution or payment institution licences. They do not, legally, connect private individuals in the strict sense: they grant conventional bank credit, backed by investors.
Form and proof
The loan between individuals is a consensual contract for its validity – no solemn form is imposed – but its proof is locked by Article 1359 of the Civil Code. Above a threshold of EUR 1,500, “a legal act involving a sum or value exceeding an amount fixed by decree must be proved by a private signed instrument or notarial deed.” The text adds that the claimant “cannot be admitted to proof by witnesses.”
Three levels of evidential force
| Form | Evidential force | Enforcement title | Indicative cost |
|---|---|---|---|
| Private instrument | Proof of contract, but debtor may challenge signature | No – proceedings required | Free |
| Lawyer’s instrument (Art. 66-3-1 Act of 31 Dec. 1971) | Lawyer attests to having advised the parties; debtor can no longer contest signature or lack of informed consent | No – proceedings still required | Moderate fees |
| Notarial deed | Proof until proved false (inscription de faux) | Yes, directly enforceable | Proportional notarial fees |
The notarial deed dispenses, in case of default, from going to court: the lender may have a seizure carried out directly by an enforcement officer.
Essential clauses
A good loan agreement between individuals does not improvise itself. For any loan of significant amount, professional drafting is justified. Essential clauses include:
- Complete identification of the parties (per Article 54 CPC requirements)
- Economic characteristics: principal amount, date and method of disbursement, duration, interest rate (nominal and, where applicable, effective global rate), payment frequency, amount and date of instalments, amortising or bullet repayment, early repayment conditions
- Acceleration clause (clause de decheance du terme): permits the lender to demand immediate full repayment upon an incident. Without it, the lender must wait for each instalment individually.
Interest and usury
A loan between individuals may be gratuitous or interest-bearing. Article 1905 of the Civil Code permits stipulation of interest, and Article 1907 requires it to be set out in writing – a validity rule, not merely an evidential one. A loan whose rate is not in writing bears interest at the statutory rate only.
The usury ceiling
Whether granted by a bank or a private individual, a money loan is subject to usury legislation. The Banque de France publishes quarterly, in the Official Journal, several distinct thresholds depending on the type of transaction. A lender who exceeds the threshold sees excessive receipts automatically applied against normal interest, then against capital. Criminal penalties apply to habitual usurious lending (two years’ imprisonment, EUR 300,000 fine).
Tax regime
Mandatory declaration above EUR 5,000
Article 242 ter of the General Tax Code requires any person granting or receiving a loan exceeding EUR 5,000 in principal to declare its existence to the tax authorities via CERFA form No. 2062. The declaration accompanies the income tax return for the year in which the agreement was concluded. Omission exposes to a EUR 150 fine per missing declaration. This formality is regularly ignored in families – that is a mistake, as the tax authorities may, combining the absence of declaration with the absence of written evidence, recharacterise the transfer as a taxable gift.
Taxation of interest
Interest received by the lender is taxable as investment income. Since 2018, it is subject to the flat-rate levy of 30% (12.8% income tax and 17.2% social charges), unless the progressive scale is elected.
Anticipating recovery: guarantees and security
The prudent lender prepares recovery at the moment of signature, not at the first default.
- Personal guarantees: a surety (caution) is the most common – a third party undertakes to pay in the borrower’s place. See the suretyship guide.
- Real guarantees: a conventional mortgage (hypothèque) requires a notarial deed and publication at the land registry. A pledge of shares is governed by Articles 2355 et seq. of the Civil Code.
- Non-patrimonial precautions: collect evidence of solvency at the time of the loan (pay slips, tax notices, bank statements, employer identity for potential wage garnishment).
Litigation and the lender’s defence
Formal notice
The first step is a formal notice (mise en demeure) by registered letter. It starts default interest and opens the path to judicial action. See the formal notice guide.
Payment order or proceedings on the merits
For certain and undisputed claims, the payment order (injonction de payer) is rapid and inexpensive. Where the claim is disputed, proceedings on the merits before the judicial tribunal are necessary.
Forced execution
Once an enforcement title is obtained, the lender may have enforcement measures carried out: wage garnishment, attachment of bank accounts, seizure-sale of moveables, or property seizure.
Risk of over-indebtedness
A debtor facing cumulative debts may apply to the over-indebtedness commission. The debt from a private loan is included like any other civil debt: it may be rescheduled, reduced, or discharged. The lender must file proof of their claim within the prescribed time, on pain of time-bar. See the over-indebtedness guide.