Times are tough at the moment and many people will need to borrow money to pay for their Christmas plans. For some, this means spending on a credit card or arranged overdraft. Others will take out a loan from their bank or building society. Some people, however, will ask friends or family members for a loan.
In this last example, it is prudent to ensure that the terms of the loan are clearly defined to ensure that the borrower understands the terms of the loan and that the lender will get their money back when expected.
Why a loan agreement is necessary
When someone takes out a loan from a financial institution, they have to sign a loan agreement that defines the terms of the agreement, the amount lent and the expected repayment schedule. In this way, there is no room for misunderstandings or arguments.
However, when borrowing on a more informal basis from friends or family, people tend to be shy about clarifying their expectations. This often leads to unpaid debts and eventually relationship breakdowns
To protect against this situation, it is very sensible to write a legally enforceable loan agreement when lending money to a friend or family member and to have it signed. A loan agreement also makes it clear that the money was lent and not gifted in the event that repayment is not made as expected.
What is in a loan agreement?
A legally binding loan agreement, such as those created by experts like https://www.parachutelaw.co.uk/loan-agreement, will define who the lender and borrower are, the amount lent, the repayment terms, any interest applicable, whether any item of value will be held as collateral and whether a third party is guaranteeing the loan.
By including all of this information within a loan agreement, both parties have complete certainty of their responsibilities and the likelihood of disputes is vastly reduced.
In Conclusion
A loan agreement clarifies responsibilities and expectations when lending money to or borrowing money from friends or family. It can protect relationships and ensure that neither party falls into financial hardship.
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