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How to Lend Money
Without the Worry

16th May, 2017 Articles

Money and Finances Articles

Did you know that horse hair caused a mini-epidemic during WW1?

You’ve probably seen images of soldiers wearing gas masks to protect them from chemical warfare. Gas masks are more effective when the wearer is clean shaven so in a bid to protect their soldiers, the US army issued “Khaki kits” or shaving kits that contained soap, a horsehair brush, and a razor.

But they made a mistake!

The US army accidentally exposed their soldiers to Anthrax. Some of the shaving brushes contained the hardy bacteria and soldiers started to fall ill.

It’s pretty clear that the US army did not intend to make their soldiers sick. If they had made sure that the horse hair used in the shaving brushes was clean and disinfected, nothing would have happened.

Unfortunately, they overlooked this simple step.

Similarly, when you’re loaning money to a friend, family member or business associate, missing one simple step could cost you money or the relationship. This is why you should put your arrangement in writing to protect yourself if something goes wrong.

Relying on a verbal agreement is risky

You might think that’s it’s easier to rely on a verbal agreement. But take a moment to think about what might happen if things don’t go as planned. What would you do if the borrower;

  • Skips payments;
  • Stops making payments; or
  • Denies that the money was a loan and claims it was a gift?

If you only have a verbal agreement to rely on, then sooner or later it will come down to a “he said, she said” scenario.

If the conflict escalates, and you take the matter to court then you will have a difficult time proving your version of events if you don’t have a written record.

So, it’s much simpler and smarter to write everything down at the start. A loan agreement should contain the following information;

  • The loan amount;
  • Other fees or charges;
  • The interest rate;
  • Repayment date/s;
  • How the payments should be made e.g. bank deposit
  • The due date of the whole amount;
  • The term of the loan;
  • Whether there will be a guarantee;
  • Whether the Lender will take security over assets; and
  • What shall happen in the event of default.

The agreement doesn’t have to be complicated but it should outline all the terms and conditions of the loan so that both parties understand their obligations. You can download a loan template agreement that contains the relevant provisions to make the task easier.

Once it’s completed, both parties (the borrower and the lender) should sign the agreement and keep a copy.

Putting the arrangement in writing is the one simple step that will put your mind at ease and protect you if things don’t go as planned.

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About the Author

Nadia MacLeod

Nadia MacLeod is Director at RP Emery & Associates, Legal Publishers. RP Emery & Associates creates easy to use Legal Kits to save your valuable time and money. As a non-lawyer herself, she understands the confusion and unease that many people experience when confronted with a legal issue. That’s why she works to...

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