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Loans Are For Banks

Posted By Jim On 12/20/2005 @ 6:04 pm In Credit | 5 Comments

How many of you have heard of a horror story where a friend lent another friend or family member a significant sum of money (we’re not talking lunch money) with verbal payment agreements (or even written, it hardly matters 99% of the time) that turned sour? It’s those people you see on People’s Court or Judge Judy where a happy agreement made on a bright sunny day turned into a miserable treaty signed under gunpoint. As the lender, you feel guilty trying to collect but the money is rightfully yours. The borrower may have hit a rough patch in his or her life and needs a little extra time. The borrower may truly be a deadbeat, who simply looks like they’ve hit a rough patch, and wants more time. Whatever the case… it’s a bad situation.

Though, if you really feel like you want to do it, legally you need a written contract or agreement of some kind that spells out the particulars of the agreement so that you have a leg to stand on if push comes to shove. For some tips, this website spelling out some basics of contract law [3] may prove handy. Verbal contracts are ugly and when it comes down to it, it’s a he-said she-said situation as to the amount, the terms, etc. If they want the money, they have to agree to the terms. It’s business.

My rule of thumb is if you can’t afford to lose the money or the relationship, don’t lend out the cash. Things always look great when the weather is sunny…


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[3] basics of contract law: http://www.awwa.org/Sections/Sectionlibrary/ContractLaw.cfm

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