How to Write a Personal Loan
If you have discretionary resources at your disposal, chances are good that at some point somebody will ask you for a personal loan. When this occurs, you need to determine whether you can afford to lend the requested money, what the tax and income considerations are and under what terms and conditions you are willing to lend the money. You also need to assess whether the borrower will be able to pay you back under the terms and conditions you deem acceptable. If you decide to go forward with the personal loan, you should create a written personal loan agreement that clearly states the loan amount and the payment terms.
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Things You'll Need
- Written or typed personal loan agreement form
- Calculator
- Calendar
- Witness
- Notary public
Instructions
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Determine whether or not you need to charge interest on the loan. While you can make interest-free loans to family members and friends, loan payments above certain amounts are treated as income, and the government expects you to charge interest.
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Create a personal loan agreement form. There is no law that requires the loan agreement be typed, but it must be legible. The form will identify you as the lender and will include the date and the amount of the loan, the legal name and address of the borrower, the loan repayment schedule, the amount of interest (if any), the legal names and addresses of any co-signers, any collateral (property or assets) that you require, and the consequences if repayments are not properly made.
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Write a check or bank transfer payable to the borrower for the full amount of the loan.
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Arrange for the borrower, co-signer (if necessary), and yourself to sign the personal loan agreement in front of at least one witness (who also must sign) and a notary public, who will affix his stamp or seal to the agreement after everyone signs and you hand over the check to the borrower.
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Make copies of the loan agreement for the borrower and co-signer, and store the original signed and notarized personal loan agreement in a secure place such as a safe deposit box in a bank or a fireproof, locked safe in your home.
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Tips & Warnings
If the amount of the loan is large, you might want to have an attorney review the personal loan agreement so that if a problem arises, the agreement is enforceable.
According to a 2005 article in CNNMoney, the incidence of defaulted personal loans to family members or friends is 14 times greater than defaults on bank-issued loans. Never lend more money through a personal loan than you can afford to write off or live without.
