Loan Template

capri-boy

Hi, have been advised to post a new thread so here goes!

Outline is:


My house mate needs to loan some money from me, were friends and have known each other awhile, and at present no one else is in a position to lend it them. They have a house for sale as well as paying rent on the property we share and there outgoings are pretty similair to their incomings. They need the money to buy a car (7 seats, reliable as a stipulation of their job they have access to a car) in order to be able to get to work / take there kids to school (too far to walk, apalling public transport links). Before anyone asks - the answer is yes and no - to risk losing the money and friendship would be hard and painful but no, it wouldn't pose serious financial harm to me.

I'm looking for advice on the best way to do it - the amount is circa £5k (probably slightly under due to SCC jurisdiction if the proverbial hit the fan) and my thought would be to loan it on an agreement that it's repaid on the sale of the house or 1 year from the start date whichever is sooner. Should the year expire and the house remain unsold we would then have to renegotiate (an extension). I am not looking to make any profit on this, full stop, even so far as BoE base rate as if it was parked somewhere.

What agreement should we use? Can one be aquired online? for free? Is there a template people have used? How could collateral (the car) be included in it? What afre the options / pitfalls of non payment (other than blood out of a stone in a worse case scenerio) I believe that as long as we cover all the bases possible and that we are open and record our expectations of each other then this should pose no significant problem.

thanks

Apples2

You're going the right way about things, sorry I can't help with a template letter.

You quite rightly see the "blood out of a stone" scenario.

There is (must be) a reason they are unable to obtain a loan from a regular source. Many many people have only discovered the depths of the situation the people they have lent money to are in only when it is too late.

My personal opinion is that the letter you compile will be barely worth the effort once the can of worms opens.

The situation they are in with the house sale looming sounds promising for you, but far too many people have tripped over come payment day.

triticale

If you can afford to lend it and risk not see it back, then save yourself the stress and give it as a gift. You'll keep the friendship that way!

Never lend to or borrow from friends or family.

capri-boy

Thanks

there is a reason they can't get a regular loan - they can't afford the repayments whilst paying a mortgage & rent. Once the house sells then they will have equity as well as free cash each month. I've shared a house with them for a year and work with them so know very well their situation.

My reasoning for recording everything is if the worse came to the worse there is proof the money was loaned, how much when and what was expected re repayment. I won't give the money as a gift - yes as OP states in won't cause me serious harm but equally well it's my money - i worked hard for it and whilst i'm more than happy to help a friend I want it back! If given as a gift you rely on the other person giving it back with absolutely no legal recourse should they decide f@@K it and not do.

I'll try and word some some of agreement, simmiliar to a loan agreement i've had in the past from the bank, identifying who the lender and borrower are, the amounts and date lended and repayment terms and go from there. I don't think they have a cheque book - who does? - but that would be a good plan - what I'd really like to do s write the car purchased as collateral to cover he loan but have no idea how to do so. For example I don't want a used battered car worth a fraction of the loan being given to me instead of repayment.

mel12

Hi, I'm not sure of the actual wording but you basically need signed (and preferably with a witness) to say

a) that its a loan
b) when its due to be paid back
c) interest to be charged (if any).

Ie how much has been lent, how much is due to be paid back and by when.


I think its really lovely that you're lending money to help out a friend. However, do bear in mind that with both parties having the best of intentions there is still the potential for things to go wrong. You need to be aware of the possibility when making this decision.

The main benefit of having it in writing is that everything is clear to both parties at the beginning, and you have evidence should it go to court.
This protects you from someone who is unwilling to pay (i'm not suggesting he would be). However it doesn't do you much good if he is unable to pay for any reason. The court won't force someone to pay money towards debt that they need for basic living expenses (eg with a CCJ the court may only ask someone on a low income to pay back £1 or £2 a month if thats all they can afford).

Should he for some reason become unable to pay (problems selling house due to recession, redundancy, illness and unable to work, death etc), you might not be able to get the money back.

bleech_2

good advice=! Never lend to or borrow from friends or family.