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I have a friend that is in dire need of financial help from me. I know that she really needs this help from me. She has tried other ways but failed to get a personal loan for reasons she has told me that were valid. I also know that she needs this loan from me to start off her life [she has been out of job for a few months and received a great offer which she will start in August].

 

She's not asking for a lot but she insists that we have a financial agreement. I have never done this sort of thing before and I was wondering if anyone could help me out by drafting one for me? You can PM me if you think it's better that way.

 

Thanks!

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If it's not a lot then just make a simple agreement that states you loaned her the money on what date, how much and lay out the expectations of repayment and have both of you sign it and make sure both of you have copies and you keep the original.

 

Something of a side note though for you..

 

Never loan money to friends unless you consider it a gift to not be repaid... seriously...

That way if she repays you then great but if she doesn't then fine too..

A gift is something that doesn't and won't cause future stress to your friendship.

 

Remember that money and expectations of how that money is to be paid is one of the biggest reasons friends and some family members have ruined their relationships.

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threebyfate

Don't cheap out and use a generic template. Go see a lawyer. There are so many factors of which jurisdiction strongly defines the framework for the agreement. Consider bankruptcy laws, personal situation, etc.

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Thanks, Art.

 

Whether she pays me back or not, that's something that I will deal with when and if that happens. But I know her and her past financial history and it's something I am not worried about.

 

She insisted the financial agreement which she wants to pay me back within a year. We both did the calculation together and it's do-able. Just need an example of a draft.

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Don't cheap out and use a generic template. Go see a lawyer. There are so many factors of which jurisdiction strongly defines the framework for the agreement. Consider bankruptcy laws, personal situation, etc.

 

I don't think she can afford a lawyer, not right now. It's not something that I want to make a huge deal of.

 

Thanks.

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I was going to tell you to google samples of simple promissory note and then I saw TBF's post about generic templates..

 

hahaha

 

To me I guess it depends on the amount of money.. if it was 1500 then spending 300 on a attorney doesn't pass the cost-benefit test, but TBF has a point and I guess in the end it still depends how much you want to invest in covering your ase.

If things went in the tank on the repayment then maybe the 300 bucks would be well spent..

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I was going to tell you to google samples of simple promissory note and then I saw TBF's post about generic templates..

 

hahaha

 

To me I guess it depends on the amount of money.. if it was 1500 then spending 300 on a attorney doesn't pass the cost-benefit test, but TBF has a point and I guess in the end it still depends how much you want to invest in covering your ase.

If things went in the tank on the repayment then maybe the 300 bucks would be well spent..

 

Thanks, Art.

 

I don't mind spending on a lawyer, I have no problem with that but she, on the other hand can't afford it. Not to be arrogant but I won't be bankrupt anytime soon, I can't see that happening at all.

 

She's borrowing 5k from me and that's very small compared to what I have loan to my other friends [and they have paid back!]. Difference is back then none of my friends have asked for an agreement.

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I think what she wants is basically an agreement where we state how much she's paying me back monthly for 12 months and have us both sign the agreement.

 

I'm not sure what to state in the agreement apart from the amount :o

 

Just a side info, the reason why her personal loan applications were rejected because she has no car/house debts/loans. She's practically clean so the banks can't find anything on her. Don't know if it's the same anywhere else in the world but over here, that can prevent banks from approving loan applications.

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Google simple promissory note.. there are a few in the first few links.. I think one is even a word doc..

 

I'm not sure about the legal wording as far as a different country's laws go but as long as the i's are dotted and t's crossed I would think the note and the fact she is bound to pay it back would work.

 

Normally promissory notes don't have much pull in a bankruptcy anyhow as they are unsecured and any other big secured lien holders have the closet positions to be satisfied and all the unsecured loans are placed last to be paid back in the bankruptcy.

 

TBF does make a good point about the laws being different where you are though..

Maybe you could google with your country's name in it and pull up an agreement more suited to your laws..

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If you're wealthy enough to be loaning 5K (I'm assuming equivalent currency in USD) to friends 'all the time', then I wouldn't concern myself. Consider it a gift in your mind and have her prepare whatever 'financial agreement' she deems necessary. Then forget about it. Friends always repay their debts, or they aren't friends, right?

 

Also, she can reduce her 'cleanliness' by putting 500 of that 5000 you're loaning her in a savings account at a bank, and then getting a 'secured' loan on that savings. She'll pay it back with interest and will become more 'dirty' so future loans will come from commercial lenders rather than friends. My dad started me on that path when I was like, hmm, 12?

 

Anyway, don't loan money to friends. Generous gifts are reciprocated and appreciated. That my 51 years on the subject....

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I've always said no to friends who asked to borrow money from me. I wouldn't worry about making it LEGAL as this girl sounds JUDGMENT PROOF.

 

If you want legal advice see a lawyer because the advice I am going to give you is strictly OPINION. I think you shouldn't loan her the money. It's just to much to get from a friend.

 

If you really must loan her the money just make it some simple paper. I mean the only reason your making the paper is to make her feel better. Would you really even sue her if it didn't work out?

 

I ____________ loan $5,000 to ____________ on ________ 2010. To be repaid by ______________ by _____________. In 12 seperate payments by check/money order on the first of each month given to me, _____________.

 

then you both Sign and Date... have a witness sign and date after watching you all sign if you want to have other people know about the agreement lol

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Google simple promissory note.. there are a few in the first few links.. I think one is even a word doc..

 

I'm not sure about the legal wording as far as a different country's laws go but as long as the i's are dotted and t's crossed I would think the note and the fact she is bound to pay it back would work.

 

Normally promissory notes don't have much pull in a bankruptcy anyhow as they are unsecured and any other big secured lien holders have the closet positions to be satisfied and all the unsecured loans are placed last to be paid back in the bankruptcy.

 

TBF does make a good point about the laws being different where you are though..

Maybe you could google with your country's name in it and pull up an agreement more suited to your laws..

 

I have looked into the financial laws over here but they are more for professionals and well, HUGE amount! :laugh:

 

If you're wealthy enough to be loaning 5K (I'm assuming equivalent currency in USD) to friends 'all the time', then I wouldn't concern myself. Consider it a gift in your mind and have her prepare whatever 'financial agreement' she deems necessary. Then forget about it. Friends always repay their debts, or they aren't friends, right?

 

Also, she can reduce her 'cleanliness' by putting 500 of that 5000 you're loaning her in a savings account at a bank, and then getting a 'secured' loan on that savings. She'll pay it back with interest and will become more 'dirty' so future loans will come from commercial lenders rather than friends. My dad started me on that path when I was like, hmm, 12?

 

Anyway, don't loan money to friends. Generous gifts are reciprocated and appreciated. That my 51 years on the subject....

 

Thanks carhill.

 

Nope, not in USD :laugh: I didn't bother to convert to USD as I feel that is irrelevant. Again, I have no problem with her not paying back because she has helped me a lot in the past in other ways. We have been friends for many years and I know that she has tried elsewhere and borrowing from me was her last option.

 

Paying me back or not, a gift or a loan ~ whatever. I just thought I'd ask people of LS on the sample of agreement which you guys have helped me with :)

 

Thanks Art, tbf, carhill and Green.

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I think the degree to which you need an agreement to be "legally solid" is dependent on the degree that you intend to rely on your local legal system for redress if she defaults.

 

If you are able to treat it as Art's suggestion - in your own mind, consider it a gift at the outset, and if she pays it back in full, consider that a bonus - then the agreement is simply an explicit statement of the handshake deal. I think it bodes well that the borrower is asking for the agreement; this implies that she is taking this seriously.

 

If, on the other hand, you might seek action by a court, then yes, you want it to be legally solid, and you might want to seek legal advice.

 

Bottom line: the degree to which you intend to protect yourself in order to present a solid case in the event of a default will dictate the level of legal consultation you should engage at the outset.

 

If you do decide that you wouldn't seek legal action in case of a default, then Green's simple suggestion probably mostly meets your needs:

I ____________ loan $5,000 to ____________ on ________ 2010. To be repaid by ______________ by _____________. In 12 seperate payments by check/money order on the first of each month given to me, _____________.

 

It is also common, in such agreements, to spell out the consequences of not meeting the requirements: e.g. additional interest that accrues, a late fee to be added after a monthly payment is a certain amount late, and/or a penalty if the entire amount is not paid by the one year deadline.

 

Also, if you do go with the attitude that you wouldn't seek legal action, I also agree with whoever said, ask her to draft a proposed agreement. Tell her to draft it, including the date of the loan, the repayment schedule, the final date by which all is to be repaid, and the consequences for late payments. Since this is her suggestion (and a reasonable one...) suggest that she make the first draft, then see if it meets your needs.

 

Edited to add: Looks like I crossposted with your last post... I see that it looks like you could just blow it off if it didn't work out, so I don't think you need to go "full legal" then...

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Great suggestion. Healthy balance is, IMO, the 'borrower' should do some work, since she's not submitting a credit application. Suggesting a lending agreement and then leaving the friend who's generously offering their assistance to figure it out, coming here for advice, sounds inequitable. I won't say Hoover, but skating there....

 

'You draw up a repayment agreement and include any interest you deem fair. I'll review it and we can both sign it. Sounds great.'

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It is also common, in such agreements, to spell out the consequences of not meeting the requirements: e.g. additional interest that accrues, a late fee to be added after a monthly payment is a certain amount late, and/or a penalty if the entire amount is not paid by the one year deadline.

 

Thanks, Trimmer.

 

She did mention that verbally, that if in any case she couldn't pay in time, she would include a late fee.

 

I don't see the need to get a legal opinion on this as it will be coming straight from my savings.

 

Great suggestion. Healthy balance is, IMO, the 'borrower' should do some work, since she's not submitting a credit application. Suggesting a lending agreement and then leaving the friend who's generously offering their assistance to figure it out, coming here for advice, sounds inequitable. I won't say Hoover, but skating there....

 

'You draw up a repayment agreement and include any interest you deem fair. I'll review it and we can both sign it. Sounds great.'

 

I don't see anything wrong in her wanting me to draft it out or even write the agreement myself. She has showed me the calculations and I have told her that we can both have our own set of agreements and see which fits best us both.

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You're doing all the work *and* giving her the money. If that works for you, accepted. It *would not* work for me. That's Hoover behavior.

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You're doing all the work *and* giving her the money. If that works for you, accepted. It *would not* work for me. That's Hoover behavior.

 

And? Clearly it works for me and I don't mind that :).

 

Some people are against lending money to friends, even family members, some who don't mind are in the minority which is ok.

 

I know who can be trusted when it comes to lending money, and who couldn't. She's one of those people I trust and if I'm doing MORE work than she is, so be it.

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Liketherest

Can you afford to gift her the money? Can you afford to be with out the money and spen the time to collect it in small claims court? Can you see this person as not being your friend anymore? No written agrement can protect you from the pains of those questions. Your opening up a new relationship with this person, and it's buissness. Sure, people do it all the time and nothing happens. But their in the minority. Even if she had collateral for the loan, like her car, would you be comfortable taking possesion of it if she defaults?

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Can you afford to gift her the money? Can you afford to be with out the money and spen the time to collect it in small claims court? Can you see this person as not being your friend anymore? No written agrement can protect you from the pains of those questions. Your opening up a new relationship with this person, and it's buissness. Sure, people do it all the time and nothing happens. But their in the minority. Even if she had collateral for the loan, like her car, would you be comfortable taking possesion of it if she defaults?

 

I can afford to give her the money without expecting her to pay me back. I have stated that before. She insists on paying it back hence the agreement suggestion. I will not go through legal system cos it's not a huge amount, it will be a waste of time and that's my personal opinion. No, I will not take her car, house, job etc.

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The fact is YOU are not going to SUE her if she doesn't pay. Also if you sued her over such a little ammount of money it would cost a lot... plus even if you won she wouldn't have the money to pay you.

 

Why don't you just make a video with your phone or camera with her saying. I promise to pay you back. Then if she still wants a contract have her make it as it doesn't really matter.

 

Don't lend her the money unless saying goodbye to the 5,000 dollars doesn't matter.

 

Like I said before I WOULDN'T DO IT. I've had a few friends ask me for money and I ALWAYS said no.

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Read what I stated above. It does not matter to me. She insists on paying me back.

 

Like I said before I WOULDN'T DO IT. I've had a few friends ask me for money and I ALWAYS said no.

 

Good for you then. When a friend asked me for help, I would help them in any way I can. If it's money that they want, I will lend them the cash. I have done it, they have paid back. Everyone was happy and we are still friends.

 

I've made the decision to lend her the money cos she is in dire need of help.

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A point to consider when expanding upon the OP's original request, which was merely *how* to go about this, is that she lives in a different culture than we U.S. citizens and her culture may approach social interactions, friendships and matters of finance very differently. OP, am I correct that you reside in the Middle East? If so, that definitely changes my tone of advice. I have friends from that region and it is truly a different dynamic. They approach friendship and money completely differently than I do. Hope it works out :)

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