If you are planning to give a loan to your family member or your friends, then it is compulsory for you to write the terms and conditions for the safe side. You have to make a schedule for every monthly payment to have an idea about the interest rate you will add in every monthly payment. This is one strategic management.
And, this will help you to know when the borrower has paid off the monthly payment. Similarly, the borrower will know about the dates of the payments. You have to make them signed by both the parties. This will avoid the misunderstandings in the coming months and it will don’t affect your relationship.
Collateral and Interest
You have to make a decision that if you need collateral for the safe side or you want to ask for high-interest rate. Now, it is your decision as a lender but decide it before the loan agreement. Always choose an item as collateral which is exactly to the amount of the loan because in case the borrower fails to pay back, you will be in profit not in loss.
Common forms of collateral are electronic equipment, a car title or jewelry, depending on the amount of the loan. If the loan will include interest, decide the percentage of the interest rate. And, give the borrower monthly payments with the dates.
Agree to the Terms
Sit with the borrower and write the loan agreement. This is important to know if both the parties are agreeing on the terms and conditions. If you are not satisfied with the term and conditions, you can cancel the loan agreement and the same goes for the borrower. Both the parties should sign the agreement to move forward.
Notarize the Loan
To having your promissory note notarized does not make you assured that the loan agreement will be followed as written by both parties. A notary just tells that the signatures on the agreement are legitimate.
However, if the loan agreement is notarized, the borrower will have a hard time backing out of the promissory note by saying that he never signed the agreement.