There are times when someone close may ask you to borrow a large amount of money, sometimes called peer to peer lending. This can sometimes create a situation because you want to be sure to keep the loan and your relationship separate, but the two can become muddled very quickly, especially if anything goes wrong with the repayment of the loan. It is best to create a written agreement for the loan to ensure that you and the person you are lending money to are on the same page when it comes to the loan. The guide below walks you through the essentials that should be included in the loan agreement.
Establish the Exact Amount for the Loan
In the agreement you need to state exactly how much your friend needs to borrow. You may want to mention what your friend stated the money would be used for, just to create a track record for why so much money needed to be borrowed at one time.
Establish When the Loan Was Given
You need to establish the exact date that you gave the loan to your friend. This allows you to create a paper trail because you can track exactly what day you took money out of your bank, got a money order, or transferred money into their account.
Establish How the Loan Was Given
You also need to indicate how the loan was given to the person when creating the agreement. This is important because if you ever have to take the person to court because they did not repay the loan, being able to establish where it came from will solidify that you did in fact give them a loan.
Establish Repayment Terms
Be sure to clearly establish what the repayment terms are in the agreement. You want to be sure to indicate if there are going to be payments made over time and, if so, indicate the exact dates that the payments are to be made. Establish a date that the entire loan needs to be repaid by in the agreement as well.
Establish Who Is Involved in the Loan
Finally, you need to be sure to indicate the exact person or people who are involved in the loan. If you are giving a loan to a husband and wife, both of their names should be in the agreement to ensure that they are both responsible for repaying the loan to you.
Once you have all of these factors included in the agreement, take it to a notary with the person that you are lending the money to and have the document notarized and dated. All of this information is important when giving someone a loan in case they default on it and you have to take them to court to get your money back. While you hope it never comes to that, you still need to protect yourself just in case something does happen.