A one-sided document is all that is needed to establish a binding payment agreement letter. The following example is a template that can be easily adapted to a large number of transactions. The lender may have good credit reasons that are not financial, for example, parents can lend money to their children for college or help them buy their first home. The letter is intended to protect both parties entering into the contract. It is best to have legal proof of who borrowed the money, when they borrowed it, and the exact terms of repayment. Legal proof of all the details involved protects both parties` bank accounts as well as friendship. For example, an employee of your local bank is a great choice to use as a third-party witness, as they have no personal interest in how the loan is cashed out or in the loan itself. There is also the possibility of having it certified notarized by an official notary. The first paragraph should clearly indicate the name of the lender and borrower, as well as the amount borrowed and the date on which the loan was originally granted. For example, Darci Barton lent Sandy Smith the amount of $US 2500 on March 1, 2020. The letter must clearly state “credit agreement” so that it can have legal significance. The use of this formal term would also make the agreement serious.
The borrower will also understand the seriousness of the agreement and will endeavor to comply with it. Finally, ask your friend to sign the agreement and give them a copy. The signature must be certified before a notary. You can also design the agreement by specifying your full name and residential address as in this example. In addition, the agreement can define the type of penalty if the money is not refunded as agreed. This loan agreement will be concluded on February 12, 2014 between the following people: – Describe in detail the repayment terms of the loan. Often, these types of loans are repaid immediately after the borrower has received a significant lump sum as a result of a financial event, such as. B legal action in the event of a tax settlement or refund. It may be a good idea to guarantee the loan by getting guarantees, i.e.
take something from the borrower that you can sell if they won`t repay the loan. Most people who lend to family or friends don`t charge interest. You should, however, ask yourself if you will lose significant income from the money during the period. It might be a good idea to calculate at least the same interest you would earn on the money if it remained in your possession. Calculating interest will also deter the borrower from viewing the loan as a gift. An agreement usually sets out the terms of the loan, including the amount to be loaned, the interest rate, the data and duration of the loan, the frequency and value of repayments, any collateral used to secure the loan, and the terms under which you can sell or take possession of the collateral. We will discuss the terms you should insert here. This degree of detail is necessary for the protection of both friends, since it is much less likely that quarrels will occur. The promisor, the friend who lends the money, receives assurances that the beneficiary, the friend lending the money, will not claim that the loan was actually for a much larger amount. Agree on an interest rate for the loan as well as the exact method you want to use to calculate the interest on the loan. Alternatively, if both parties agree that no interest will be charged, make sure that you also introduce them into the terms of the loan. On the other hand, they can perfectly turn to a financial institution for credit, but are looking for a more advantageous alternative – it is up to you to decide if you want to commit.
As far as possible, both parties should sign and date the formal document with a third witness….