It's a good idea to lend money to someone in financial distress.You could make money in the process.You should never hand over money without protecting yourself.The details of the loan should be negotiated and the appropriate legal documents drafted.Hopefully, the loan will be paid back, but be prepared to take legal action if necessary.
Step 1: Talk to the person who borrowed the money.
Before you lend money, you need to know what the borrower wants to do with it.Ask them why they don't go to a bank.The person may have poor credit.People with bad credit can get personal loans.How likely they are to repay the loan can be assessed.Are they working?How much do they make in a week?What debts do they have to pay?
Step 2: How much to lend is up to you.
Don't lend if someone asks for it.They might want to buy a computer but ask for too much.You should ask them what they want.People often ask to borrow more than they need.It is up to you to decide how much to let someone borrow, but you should not agree to more than you feel comfortable with.A good rule of thumb is not to lend more than you can afford to lose.
Step 3: A reasonable interest rate is what you should pick.
If you are lending to friends or family, you might want to charge interest.Paying interest shows that the person is serious about repaying the loan.It will be more difficult to repay the loan if the interest rate is too high.You can charge a maximum interest rate in your jurisdiction.You can research this rate online.If you make a big loan, you have to pay the minimum interest rate set by the IRS.The current rate can be found on the IRS website.
Step 4: The repayment schedule should be set.
The size of the loan will affect the repayment schedule.If you lend someone $500, they should be able to repay you in a few months.If you lend someone $5,000, they might need a few years to pay back the loan.A person won't have to pay every month if the repayment period is longer.If you charge interest, they will pay more over time.
Step 5: You can choose how much will be repaid each month.
The borrower should pay the same amount each month.It is easier for the person to budget and send the same amount every month.The last payment might be smaller.Depending on the situation, you may be able to get the borrower to pay you back every week.The amount borrowed might be small if the borrower gets paid every week.It would make more sense to expect repayment every week.
Step 6: Penalties or late fees can be determined.
You should think about charging a fee if the borrower misses a payment because you want them to pay back the loan in a timely manner.You can charge $25 if they are 60 days late.
Step 7: Asking for security is a good idea.
Unsecured loans are riskier than a secured one.The property the borrower puts up as security is a secured loan.If they can't repay you have the right to seize the property and sell it.A borrower's car, computer, stocks, etc., can be considered security.They need to own the collateral, not rent it.The loan process is a little more complicated because of security.You should check to see if the property has been pledged as a security for other loans.The collateral might not have any value if it has.You can find other security interests at the Secretary of State's website.
Step 8: There are forms and templates.
Sample promissory notes can be found online or in legal books.When drafting your own, use one as a guide.Don't be afraid to insist on a promissory note if you want a legal contract.The promissory note should be drafted by a lawyer if the loan is large.
Step 9: Information about the loan should be included.
The first paragraph should include the amount of the loan and the title "promissory note" should be at the top.The date is what it is.Your name is the lender.The name of the person who borrowed it.
Step 10: The promise to repay should be included.
A promise to repay the loan is required by law.You don't have a legal contract if the language is missing.A sample language reads, "For value received, the Borrower hereby promises to pay to Lender the principal sum of $4,000 pursuant to the conditions set forth in this document."
Step 11: How will the loan be repaid?
The date the first payment is due should be stated.The interest rate and whether the loan can be paid off without penalty should be identified.Tell the person how to pay you.
Step 12: Do you know what will happen if the borrower is late?
You can either charge a penalty for late payment or increase the interest rate.What will happen is spelled out in detail.You may want to accelerate the loan.If the borrower misses a payment, you can demand that they pay the entire loan.
Step 13: The security agreement needs to be added.
You need to include a security agreement with the borrowers.A sample security agreement can be found online and in legal books.A clear statement that the borrower is giving you a security interest in the property is required by the agreement.In order for it to be identified, you need to describe it in enough detail.The make, model, and Vehicle Identification Number should be included in the identification of the car.
Step 14: You can sign and distribute copies.
The borrowers and you should sign the promissory note in front of the public.Give the borrower a copy of the original document.The promissory note needs to be signed before the money can be given.
Step 15: Perfect your interests.
You need to file legal documents with the Secretary of State in your state.If the property is used as security for other loans, this paperwork is necessary.You must file a U. C.C.It was a statement.You can fill out the financing statement form.Either your Secretary of State has it or you can find it online.It's possible that the process for perfect in your jurisdiction is different than it is in the U.S.
Step 16: Make sure you monitor repayments.
Keep a record of every payment and the date it was made.Detailed records will keep disagreements to a minimum.When you receive payment, you should send the borrower confirmation.You can send an email.
Step 17: If the person is late with their payments, call them.
As soon as the deadline passes, call.Ask what is going on.It is possible that the borrower forgot to pay you.They may be struggling financially.You need to call them and find out what's going on.
Step 18: Send due notices.
The missed payments need to be documented.Send past-due notices by the 30th, 60th and 90-day marks.You need to document everything to make sure you are protected.The notice should be different.You just remind the person that they are late with their payment at 30 days.You can tell them at 60 days that they owe you late fees or penalties.Tell them at 90 days that you are considering a lawsuit.Return receipt requested for all notices sent certified mail.There is a receipt and a letter.
Step 19: Demand something.
If the loan was secured, you can demand something from the person who stops making payments.You can take it if the borrower doesn't hand it over.When you collect the collateral, you can't break the peace.You can't use violence or threats to take someone's property.
Step 20: If necessary, bring a lawsuit.
You can file a lawsuit when a person doesn't pay.You will only get a money judgment for the amount that you are owed.You can take other steps to collect on your judgement, such as taking the debtor's property or their wages.Discuss the lawsuit with an attorney.They can help you figure out your best course of action.If you don't owe much, you can file a small claims court lawsuit.Don't delay.You don't have much time to collect on a debt.The time period is called the "statute of limitations."You have five years to file a lawsuit in Florida.You get 10 years in Illinois.