Writing a contract to borrow money from a friend or family member is critical because it helps to ensure that there are no subsequent financial disagreements later on. I also encourage both parties to think carefully about borrowing or lending money because it has the potential to destroy relationships should there be an argument or dispute concerning payment.
If you are borrowing money from a friend or family, make sure that you are able to actually pay him or her back within a certain time frame. It is very important to plan ahead and think about how you are going to pay back the money you hope to borrow.
If you are a lender, you should ask yourself: Will I be okay if this person fails to pay me back in a timely manner? You need to be honest with yourself, and only lend the money if you are comfortable with the possibility that you may never see your money again. I personally tend to not lend money to either friends or family members.
However, in the rare occasion that I do, the amount of money that I lend out is something that I am okay with not getting back. Obviously, I want to get my money back, however, it would not be the end of the world if I didn’t see that money again. I’ve used this method as a general rule of thumb whenever I lend out money.
Sample Loan Agreement Contract Letter
Today Date: April 30th, 2014
Amount of Loan: $500
Final Date to Repay Loan: June 31st, 2014
Loan Agreement Terms:
This is to confirm that on April 30th, 2014, I, Hannibal Lecter, have borrowed $500 from Alex Mercer. This money will be used to pay my rent for the month of May. I have received the borrowed money from Alex Mercer today in the form of a personal check. I agree to pay my best friend back the amount of $500. I will be repaying the loan back in two bi-weekly payments as follows:
May 13th, 2014 – $250
May 27th, 2014 -$250
If I do not pay back the full loan amount by June 31st, 2014, I will have to cook Alex Mercer a gourmet dinner every night for three months while I wear a pirate hat and an eye patch. If I am unable to make the complete payment, I will have to cook all of Alex Mercer’s meals while wearing the above items until payment is made in full.
When I do make my payments, they will be in the form of a personal check or cash. If it is in cash, then I will get a receipt for the amount that I paid. If the full loan is paid back on the dates above, then I will not be required to cook Alex Mercer’s meals or wear the aforementioned items, unless under my own free will.
We both agree to these terms and conditions in full.
Borrower’s Signature, Address, Date
Lender’s Signature, Address, Date