How to Loan Someone Money With Legal Guaranteees

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Establishing a legal framework before lending money to anyone, even a family member or friend, is important. You may write up a contract yourself, hire a lawyer to do it or contract with a third-party loan agreement service. This written record can stand as proof of the loan agreement and can be used to justify a lawsuit if you fail to collect the debt using a collection agency or other means.

Create a loan agreement between the two parties that clearly outlines the terms of the loan and how it will be repaid. This contract can be renegotiated at any time. You may create a legally binding agreement without a lawyer, but if you choose to, one could review it and make suggestions to ensure that it's a mutually beneficial contract. You may also contract with a third party social loan service, such as Virgin Money US or Lending Club, to create the terms of the loan, handle payment and pursue collections if necessary. Create stipulations for what will happen if loan payments become 30, 60 and 90 days late.

Make copies of the loan agreement for both yourself and your borrower. Keep them in a safe place, and consider scanning copies to keep on a hard drive.

Renegotiate the terms of the loan if necessary. There's no reason to let a contract that's no longer advantageous to either party to remain firm. It's legal to renegotiate a contract as long as both parties agree to the changes.

Wait to receive payments. If you want to report the loan to the credit bureaus, you may subscribe to those services and use the evidence of the loan agreement to create an entry on the borrower's credit report. On-time payments can build the borrower's credit rating, particularly if the loan amount is large.

Pursue collections or try to negotiate a new payment plan if the borrower falls behind. The fact that you've created a contract depersonalizes the agreement and makes it more likely that you'll be able to negotiate a settlement without damaging the underlying personal relationship.