4 Less Formal Lending Transactions That Need a Legal Contract Jan 4, 2021Views: 66
The transactional circumstances today vary widely and in many cases, agreements are involved between the parties. Sometimes, people tend to lend to their friends or relatives under mutual agreement and ignore a legal contract.
It is important to record the details of all lending transactions, including the date, time, amount involved, and repayment terms and conditions, regardless of whom you are lending to. A legal contract is not only important in formal transactions but also in the less formal ones.
Lending to a person for attractive returns
According to Netlawman.co.uk, before lending money to someone for attractive returns, it is important to include a legal contract in the form of a loan agreement with all the proper considerations. This may ensure that the lender gets paid and gives provisions on what to do in case of default. Ii may therefore reduce any kind of conflicts that may arise in the future.
The contract provides details of the amount involved, when the money should be paid back, and repayment terms. When the contract is executed, it is a promise that the money will be paid. The loan agreement is proof that the money involved is not a gift.
Lending to a friend for a joint venture engagement
A joint venture is a temporary partnership where two people engage in a business for a specified period after which it is dissolved. Sometimes, some of the partners may need to borrow from others to be part of the partnership.
In such a case, it is important to enter into a legal agreement to protect all the parties involved whether the borrower is part of the joint venture or not.
The joint venture agreement should constitute the lending terms and conditions, profit sharing ratio, partnership length, and how to resolve disputes. The legal contract ensures that the money lent is repaid at the agreed conditions and that the terms of the joint venture are adhered to.
Lending to a friend or relative for their business
When lending money to a friend or relative under a mutual agreement, this may not be enough to ensure that the lender gets paid. Agreements regarding large sums or whose repayment period is long should be in writing. Lack of an agreement may make it difficult to make follow-ups to ensure that the loans are paid.
The lender can consider the need to secure the loan with security. The security may not completely protect the lent amount, but it can reduce the risk of loss. Traceable securities, a written promise by a third party to make the payment on the due date, and physical assets are the most common forms of assets that can be used as security.
The legal contract must also include details of the security. The lender should consider the value, liquidity, and market value of the security. A lender might ask the borrower to have a guarantor who can stand in the gap if the borrower fails to pay.
Lending to your child for home buying
Many parents dig deep to lend to their children when they want to buy houses. Lending money to a child may sound like a safe bet but a legal contract is still important. This may prevent any future misunderstanding between the parent and the child. While a handshake may be considered sufficient, the lender needs to understand that things can change.
The legal agreement should include any interest charged, the repayment terms, and whether the borrower is expected to pay the whole amount. It should also include whether the loan can be forgiven upon death or whether any unpaid amount can be considered an inheritance.
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