Sometimes, friends and family members may come to you requesting money. They could be having a hard time financially, or they might just need to borrow some quick cash in order to get that new set of luxury boots they saw in the shop window the day before their payroll check arrives. In any case, loaning money can be an uncomfortable event. You know that there is always the chance that you may never see the money again; but how can you truly turn down your loved ones, when they expect that you trust them?
When you loan money, it is much more of a personal experience than a business or professional one. Therefore, many individuals may be insulted by formalities when it comes to borrowing money. However, these circumstances can almost require legal formalities; especially when it involves a large sum of money.
Protecting Yourself Legally
A legal contract can protect you when loaning money; especially when you are loaning a large amount of money that you may never seeing again. A promissory note contains important details and is a legitimate contract between the person who is loaning (you), and the person who is borrowing. It demonstrates default terms, the rate of interest that is being applied, and the schedule for repayment that the borrower will be bound to. For just 15 bucks, you can get a handy promissory note from LegalZoom; meaning it’s a cheap form of protection.
If the person that you are loaning money to has valuable items in their possession, you may request that he or she use them as collateral within the loan contract. This will protect you greatly, allowing you to seek those possessions should he or she fail to repay the loan. Otherwise, you could find yourself in a futile battle should you try to recoup lost money later on.
Things to Ponder When Loaning Money
When it comes to family, or even friends, they can take it personally when you request that they sign a contract in order to borrow money from you. This can be a very unpleasant experience for both parties. Of course, it is only natural to want to protect yourself from losses; especially when it involves large sums of money. You should ensure that he or she is aware that you are only using it as a means of protection, even if you might trust the loaner completely.
Loaning money can be a painful process for any relationship; it may not only stress you and possibly cause you to lose trust for the individual should they fail to pay you back, but it can also hurt you financially. This is why using promissory notes is so important. If the relationship does become stressed due to their refusal to repay, you can still seek your lost funds.