In some cases, an oral contract between a person who is borrowing money and a lender may not be legally binding. To protect all parties, you should draw up a contract if you plan to borrow money from a friend or family member. A contract will also help prevent any misunderstandings about the loan terms that may come up down the road.
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Place both names and a date at the start of the contract. Full names and contact information should be listed on the loan contract.
Define the type of contract. If it is a loan and not a gift to the borrower, then that must be stated within the body of the contract in order to avoid confusion. The loan amount must be included as well. If there is not a set amount, then a maximum loan should be printed on the contract.
Include any interest that is going to be applied to the loan. If you and the lender agreed on a particular interest amount or percentage rate, that should be put within the section of the contract that deals with the terms of the loan.
Set a payment date that will be included on the contract. You and the lender will have to choose a date where payment needs to be made in full. You can also choose to attach a payment schedule with the loan contract with dates and payment amounts.
Sign the loan contract. Both you and the borrower should sign and date the contract. You may want to have it notarised as well for extra security. Each party should retain a copy of the loan agreement.
Tips and warnings
- You can also make a contract for borrowing money by asking a lawyer to create a promissory note. These documents also make it legally binding that the borrower repays the debt.