Money Loans in Thailand and Key Issues for the Parties to Consider

If you plan to be a borrower or lender of money in Thailand then there are several key matters which you should be aware of before the loan is made. This legal article shall discuss various key issues which the parties should be mindful of including interest, repayment of the loan & legal requirements for enforcement of a loan.

 

The Civil & Commercial Code of Thailand – Loan for Consumption

A loan of money falls under the classification of ‘loan for consumption’ under the Civil & Commercial Code of Thailand (CCC). This is where a “lender transfers to the borrower the ownership of a certain quantity of property which is consumed by the user and the borrower agrees to return property of the same kind quality and quantity”.

 

It is worth noting that a loan contract is only considered as complete when the loaned property (i.e. in this case money) is delivered to the borrower, hence the writer recommends that if a money loan is given then it should be made by funds transfer or deposit into the borrower’s nominated bank account so there is clear evidence of when the loan is delivered, furthermore the deposit/transfer slip should be retained as evidence of the same. The writer recommends that the loan agreement between the parties should be signed on or before the loan is transferred/deposited into the borrower’s bank account.

 

Verbal Loans (loan amount under 2000 baht)

The CCC provides that loan contracts which are made verbally are only valid if the loaned amount is under 2,000 baht and such loan agreement is witnessed by at least one person.

 

Requirement for Loan Agreement to be made in writing to be legally enforceable

If the lender and borrower agree to a loan whereby the loan amount shall exceed 2,000 baht then in order for the loan contract to be enforceable in the Thai Courts then the CCC requires that there be some evidence of the loan made in writing which is signed by the borrower. In relation to such evidence, the writer recommends that best practice is to have the borrower and lender both sign a loan agreement which covers the key details of the loan, these are discussed below in this article.

If a party to the contract is a company limited then the loan contract must be signed by an authorized person who has authority to execute such agreement on behalf of the company according to its affidavit of company registration. If a party to the loan agreement is an individual then the writer recommends attaching a copy of their ID card or passport to the contract in order to clearly identify them.

 

Interest on the Loan

According to the CCC, the interest on a loan for consumption cannot exceed 15% per year. If a loan agreement specifies a higher rate of interest then it shall be void according to the Act Prohibiting the Collection of Interest at an Excessive Rate B.E. 2560 (2017). However, it should be noted that there are specific laws which provide that a higher interest rate can be charged, for example those relating to the loan of money by certain types of financial institutions, credit cards etc.

If a loan agreement does not specify the applicable interest rate then the CCC provides that the applicable interest rate shall be 7.5% p.a.

It is also worth noting that Thai law stipulates that interest shall not bear interest, however the CCC provides that the parties to a loan can agree that the interest due on a loan (for not less than 1 year) be added to the capital/ principal and that the whole shall bear interest, however if this is to apply then the borrower and lender must so agree in writing.

 

Repayment of a Loan

If a borrower repays the loan then they should be aware that the CCC provides that no repayment of a loan of money which is evidenced by writing may be proved unless there is some written evidence which is signed by the Lender or the document evidencing the loan (such as the loan agreement) has been surrendered to the borrower or otherwise cancelled.

For the safety of a borrower, the writer recommends that when a borrower makes a repayment of a loan (full or partial), they should obtain a dated and signed receipt from the lender which confirms the repayment of the specific amount by the borrower on the specified date. If the loan is fully repaid then it would be prudent for the borrower to get a signed and dated confirmation letter/receipt confirming the same for their records.

 

Repayment of a Loan in Goods/Property other than Money

If a loan is made for a sum of money, and the lender accepts goods or other property for the repayment of the loan, then the amount of the debt that is extinguished thereby shall be considered as equal to the market value of the goods or property at the time and place of delivery. Hence, if goods are accepted by the lender for repayment of the loan it would be sensible for the lender to have an independent report prepared on the value of such goods and have it signed by the borrower confirming this valuation too.

 

Loan Costs

The CCC stipulates that the costs of the loan contract as well as costs associated with delivery of the loaned property (i.e. money) as well as costs of return shall be the responsibility of the borrower.

 

Loan Contract – Recommended Key Features

If a person or a company is going to enter into a loan agreement either as borrower or lender, then in the interests of clarity and good business practice, the writer recommends that they have a written loan contract prepared which covers the following key matters:

  1. Identify each party clearly using their full legal name, refer to their ID and specify their address. If a party is a juristic person (such as a company) then specify its registered address;
  2. The amount of money loaned by the lender to the borrower (i.e. principal amount & currency);
  3. When the loan shall be made by the lender to the borrower and when it shall be due to be repaid in full;
  4. The interest rate which shall apply to the loan (max. 15% p.a.);
  5. Repayment schedule for the principal and interest;
  6. Where the loan and interest are to be repaid to, i.e. Lender’s nominated bank account;
  7. Rights of borrower and lender such as right to terminate the loan contract in the case of breach etc;
  8. The date of the loan agreement and where it is made;
  9. The governing law and jurisdiction of the loan contract. If the parties are both in Thailand then the writer recommends using Thai law as the governing law and giving the Thai courts jurisdiction over any dispute arising from the loan;
  10. Security for a loan, note that in some cases security such as a mortgage over real estate must be registered on the title deed;
  11. Assignment of the contract, in the case of the lender it would be sensible to give them the unilateral right to assign the loan contract to a third party such as a debt collector if they are unable to get the borrower to repay the debt; and
  12. Stamp duty of 1 Baht for every 2,000 Baht of the total amount of the loan. The maximum stamp duty is 10,000 Baht.

 

Contacting Dharmniti Law Office Co., Ltd.

Should you require any legal support relating to reviewing or drafting a loan agreement then please contact us at

2/2 Bhakdi Building 2nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok 10330

Tel: (66) 2680 9777

Fax: (66) 2680 9711

Email: ryan@dlo.co.th or info@dlo.co.th