If you’re planning to lend money to someone, you should consider the circumstances underwhich the money is borrowed. Agreements between family members may be put in place, not as a show of force, but to have clarity on the terms of the loan.
Similarly, lending money to someone less known to you, should be written up in an agreement that both parties sign to show agreement and understanding of the loan terms and repayment circumstances. Here is an outline that covers the key things to include when documenting a personal loan.
Formalize the agreement
A loan agreement serves as the documented terms upon which a loan is given. Loan agreement templates can be found online on NetLawman.co.uk. Consulting legal experts for a review should be considered, especially in circumstances where the relationship between the borrower and lender is not familiar.
It’s always important to do research and seek legal advice in any circumstance that could potentially be legally binding. Clarity is always better than contestation and confusion, especially with financial agreements involving family or close relationships. It’s better to be informed than caught off guard.
Loan amount
Ensure that both parties are aware of the exact amount of the loan. Just as the loan agreement needs to be clear, the agreed-upon amount is just as important. If the lender chooses to pay out the loan in intervals, a clear breakdown of those increments should be indicated.
Interest might be incurred on loan over time. The lender might want to initiate this, especially if repayment is extended over a long period. The rate at which interest is charged should be stated and understood as well.
Notable dates
Any notable dates need to be recorded in the loan agreement or a separate repayment agreement that both parties are aware of. Or for instance, in the case where the lender pays in intervals, those dates should be consistent and accurate, thereby avoiding confusion.
Dates such as the initiation of the agreement, recurring repayment dates should be agreed upon, stated and acknowledged in the agreement. A repayment calendar or appointed middle man, either in the form of a stop order, could assist in ensuring dates are adhered to as accurately as possible.
Security
Some form of security can be agreed upon. The purpose of security is to serve as surety that the person borrowing is good on their word. In the instance where the borrower is family, surety in the form of a personal guarantee from their spouse or guardian that states they will be responsible for the loan should the borrower default, suffices.
A less familiar person may be required to furnish assets as surety. This is usually in the form of immovable goods, like a factory or building they own. The surety should equate to the amount borrowed for an equal trade, should the borrower default.
Names and Signatures
A seemingly obvious element to leave out, whether an agreement is binding or not, is based on the presence of their signature and name. Signatures are acknowledgments from parties involved that they are aware and agree to what they are entering into.
A signature on a legal document is the most important part of any agreement. A signature gives the document evidentiary value and value. If the borrower defaults on the agreement created, which they signed, they are liable to the terms outlined in it. It gives the lender rights to claim the surety. A signature is an element that binds parties and loan terms together.