The reason to have a loan agreement when lending to family or friends might be to keep your relationship strong rather than to be a contract you want to enforce. If you are lending to a family member or a friend you can use the unsecured loan agreement or the family members and friends loan agreement. So if the borrower defaults or the borrower fails to make loan payments, the lender may acquire the assets submitted as security and sell them off to realize the loan amount. This eliminates confusion as to which asset was charged. If you are lending to someone you don't know well, a secured loan agreement records the security against the loan as well as other terms of the loan. A written agreement protects both the borrower and the lender. Regardless of whether you are lending to or from a family member, colleague, or someone you do not know well, it cannot be emphasized enough how important it is to record the loan amount and any terms of the loan in an agreement.īorrowing any amount of money is a large commitment and it is important that both the lender and borrower are agreed and clear as to the terms of the loan. If there is one contract that should always be in writing, it is a loan agreement. Why is it important to use a loan agreement?
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March 2023
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