Many people, when they run short on money and feel desperate, resort to borrowing.

It is clear that “our bargaining power” is much less than that of the creditor. The best way to protect oneself from being at a disadvantage is to “know the law”, which serves as a protective barrier to prevent being taken advantage of or oppressed.

            Did you know?

            If the loan amount exceeds 2,000 baht, a written contract must be made and signed; otherwise, legal action for debt recovery cannot be taken. According to the Civil and Commercial Code, Section 653 states that "A loan of more than two thousand baht must have written evidence of the loan, signed by the borrower, otherwise legal action cannot be taken to enforce the debt."

            There must be written evidence of the loan with the lender's signature, and the borrower must receive the money before the contract is considered valid. Even if a contract is signed, if the borrower has not received the money, it is deemed incomplete, and the lender cannot demand repayment.

For example, if borrowing 2,001 baht, a written loan agreement must be made, which does not require a specific form but must clearly specify the following details:

1. When the loan is made, specify the date of the contract.

2. Who is borrowing?

3. Who is lending?

4. What is the amount of money?

5. What is the interest rate per year or per month?

6. When is the repayment due?

7. Importantly, both parties must have “signatures” as evidence; otherwise, legal action for repayment cannot be taken.

          If someone cannot write their name, they can use a fingerprint instead, but it must have “witnesses” who sign to confirm that it is indeed the borrower's fingerprint. Additionally, if possible, avoid cross-outs in the document. While it may be practical to do so, it is better to mitigate risks that may arise from claims of “forged loan agreements.” This could lead to lengthy legal disputes that may escalate into criminal cases. It is best to sign with a clear signature and avoid any corrections.

         

In cases where loans are extended further, a new contract does not need to be made; simply cross out the previous amount and write the new amount. The borrower must sign next to the changes. If there is no signature, the evidence of the loan is only valid for the first round, and any subsequent changes cannot be legally enforced due to lack of evidence.

          Therefore, it is advisable to “create a new contract” each time to prevent issues of document forgery that may lead to unforeseen complications.

 

          According to Section 653, paragraph two, it clearly states that “In a loan with written evidence, the use of the money can only be proven when there is written evidence signed by the lender or the evidence of the loan has been returned or canceled in that document.”

          In simple terms, there must be a signed contract from both parties, the borrower and the lender, for legal action to be taken. If there is none, it is considered that the debt has been settled or does not affect the loan request. Additionally, if payment is made in items such as gold rings, rice, or fruit instead of cash, this can be accounted for, but there must be witnesses to confirm this clearly.

          Regarding interest, the law prohibits rates exceeding 15%. However, if the borrower voluntarily pays more, they cannot claim it back. According to the Act of 1932, if interest exceeds 15%, the lender may face criminal charges, and the interest becomes void. If no interest is specified, in the event of a lawsuit, the interest claim cannot exceed 7.5% per year. Therefore, the loan agreement should clearly specify the interest terms.

          Importantly, if you are the borrower, you must read the details carefully, especially regarding interest rates, repayment conditions, and ensure that you can repay both the principal and interest to avoid legal action, as this could cost you more than the amount borrowed.

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Article by: TerraBKK Knowledge Base

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