Debt Recovery

What Kind Of Contract Is A Loan Of Money In Thailand?

A loan of money contract in Thailand is known as a “loan of consumption”, a contract whereby the lender transfers to the borrower the ownership of a certain quantity of property which is “consumed” by the borrower.

The borrower, in return, agrees to return property “of the same kind, quality and quantity”.

Note, such a contract only becomes complete upon delivery of the property.

Who Is Responsible In Law For The Costs Of The Contract?

The borrower is responsible for the costs of the contract, the cost of delivery of the property and the cost of return of the property.

What kind of evidence is required to ensure a contract for loan of money is enforceable?

  • For a loan of money not exceeding 2,000 baht, a witness may testify in the court that a loan of money contract was established.
  • For a loan of money exceeding 2,000 baht there must be production to the court of some written evidence of the loan signed by the borrower.

What Kind Of Evidence Is Needed To Prove The Repayment Of A Loan?

Written evidence signed by the lender must be provided to the court, or it must be shown the document evidencing the loan has been surrendered to the borrower or cancelled.

What Are The Rules Concerning Interest?

As a general rule, the court will not allow an interest rate to exceed 15% a year.

Any higher rate fixed by a contract will almost certainly be reduced to 15% unless there are specific laws which prescribe a higher rate may be charged such as those relating to the loan of money by certain types of financial institutions.

The law also generally prohibits compound interest except under the following circumstances:

  • Both parties agree that that the interest due for not less than one year be added to the capital and the whole amount shall bear interest. Any such agreement must be made in writing and signed by both parties.
  • The loan is one of “commercial usage” e.g. a bank current account or loans of a similar commercial nature.

What If No Particular Interest Rate Is Specified?

If it is agreed in a contract for a loan of money that interest is payable, but no rate is specified in the contract, the court will order that the parties agree to the rate of 7.5% per year, a rate which is prescribed by law.

Can A Loan Be Repaid In A Form Other Than Money?

Assuming a loan is made for a sum of money and the lender accepts goods or other property for the repayment of the loan, the amount of the debt repaid will be considered by the court to be equal to the market value of such goods or property at the time and place of delivery.

Equally, if a borrower accepts goods or property instead of a sum of money, the amount of the debt will be considered in precisely the same way: the market value at the time and place of delivery.

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