A lender can use a loan contract in court to obtain repayment if the borrower does not comply with the contract. For private loans, it may be even more important to use a loan contract. For the IRS, money exchanged between family members may look like either gifts or credits for tax purposes. An intelligent person is always the one who validates financial transactions by filing them in writing. The main advantages of such agreements between family members or friends are mentioned below: The parties hereafter declare: 16.1 They have read the whole agreement and are bound by all conditions. 16.2 This agreement and other documents were explained to them in the language they understood and they understood the full meaning of all the clauses. 16.3 They agree that this agreement will be concluded at the time of the signing by the parties and that it will become legally binding. The loan agreement should clearly state how the money is repaid and what happens when the borrower is unable to repay. Many blog readers shared their personal experiences about the comments section.
They regretted their decision to lend money to close friends or family members. In most cases, a small amount is exchanged in the form of cash. The agreed terms are only oral obligations. From a legal point of view, the conditions for the granting of private loans are therefore legally non-binding and unenforceable. Guarantee: A secured loan is a loan that is issued and supported by collateral to be used in case the borrower is no longer able to pay. Security is usually a physical asset that can be seized and/or sold by the lender to pay the balance of the loan. Guarantees can be a car, a house, stocks or bonds. If you want to make a simple written proof of your loan, then a promissory note would be correct. You can only indicate the amount of the loan and a few simple clauses and the repayment date, etc.
Any credit granted to a person without written proof causes such difficulties for the lender: personal loans are normally private matters, i.e. with friends, family members and acquaintances. An individual lends only to people of trust and relies on mutual trust. You can call it a personal loan. This is another form of peer to peer lending, but only among a closed group. On the other hand, Private Lending is an informal credit channel. A new concept of peer to peer Lending is gaining traction in the online domain. This is an extension of personal credit, that is, outside the closed group of family and friends.
☐ The loan is guaranteed by guarantees. The borrower agrees that the loan is ready until the loan is fully paid by – A lender can always verify the purpose of the loan before lending the money. They should only lend in case of urgency and authenticity. For example, you should avoid personal loans if the borrower needs money to repay another loan. This means that the borrower is going through a deep financial crisis. Personal loans for short-term deficit or medical emergencies are quite correct. A simple loan contract describes the amount borrowed, whether interest is due and what should happen if the money is not repaid.