It is a good idea to lend money to someone in financial distress.You could make money in the process.You shouldn't give 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 file a lawsuit if necessary.
Step 1: Talk to the person who borrowed the money.
Before you lend money, you should know what the borrower wants to do with it.Ask them why they don't go to a bank to get a personal loan.The person has poor credit.Personal loans can be given to people with bad credit.How likely they are to repay the loan can be assessed.Is they working?How much do they make a week?What debts do they have to pay?
Step 2: You can choose how much to lend.
Don't agree to lend if someone asks for it.They might want to buy a computer but ask for too much.You should ask what computer 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 are comfortable with.A good rule of thumb is not to lend more than you can afford to lose.
Step 3: The interest rate should be reasonable.
Even if you are lending to friends, you might want to charge interest.Paying interest shows that the person is serious about repaying the loan.Repayment of the loan will be more difficult 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 IRS website has the current rate.
Step 4: The repayment schedule needs to be set.
Depending on the size of the loan, the repayment schedule will probably be different.If you lend someone $500, they should be able to repay you in a few months.If you lend someone $5,000, they may need a few years to pay back the loan.A person will not 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.
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 may be smaller.Depending on the situation, you may have to repay the loan every week.The amount borrowed might be small if the borrower is paid every week.It makes 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.If they are 60 days late with their monthly payment, you can charge $25.
Step 7: Asking for security is a good idea.
An Unsecured loan is riskier than a secured one.The property the borrower puts up as security is a secured loan.You have the right to seize the property and sell it if they can't repay it.A borrower's car, computer, stocks, etc., can be considered security.They have to own the collateral, not rent it.The loan process is a little more complicated if you have security.You should check to see if the property has been pledged as a security for other loans.It might not have any value if it has.You can find other security interests on 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.You should 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.If you're giving a small amount of money to a friend and not expecting to get it back, you should skip the legal documentation.
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.You are the lender.The name of the person.
Step 10: The promise to repay should be included.
The person owes the loan and must repay it.You don't have a legal contract if this 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 mentioned.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: If the borrower is late, what happens?
You can either charge a penalty for late payments or increase the interest rate.Write out what will happen.You could want to accelerate the loan.You can demand that the borrower pay the entire loan if they miss a payment.
Step 13: The security agreement needs to be added.
You will need to include a security agreement with the borrowers.A sample security agreement can be found in legal books.A clear statement that the borrower is granting 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 (VIN) should be included in the identification of the car.
Step 14: You should 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 must be signed before the money can be given.
Step 15: Perfect your interest in security.
You have 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 have to file a U.C. C.The statement was made.You can fill out the financing statement form.Either your Secretary of State has it or you can find one online.It's possible that the process for perfect in your jurisdiction is different than in the U.S.
Step 16: Make sure you monitor your repayments.
Keep a record of every payment and the date it was made.Any disagreements will be kept to a minimum with detailed records.When you receive payment, you should send the borrower confirmation.You are able to send an email.
Step 17: If the borrower is late with their payments, call them.
As soon as the deadline passes, call.Ask what is happening.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 past due notices.
You need to document missed payments if the borrower doesn't pay you back.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 slightly different.You just remind the person that they are late with their payment at 30 days.You can tell them they owe you late fees at 60 days.Tell them at 90 days that you are considering a lawsuit.Return receipt requested for all notices sent certified mail.Take the receipt and letter with you.
Step 19: Demand something in return.
If the loan was secured, you can demand something from the borrower.You can take it if the person doesn't hand it over.You can not violate the peace when you collect the collateral.You can't use violence or threats to take someone's property.
Step 20: If necessary, file 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 judgment, 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 a lot of 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.