If you agree to loan a friend or relative a large sum of money, you should consider creating a promissory note to have the person sign. This is a great way to protect yourself when issuing a loan to someone you know, and you can create one yourself or hire a family lawyer to assist you with it. Here are three things to know about this.
What is a promissory note?
A promissory note is an agreement that states that one party agrees to repay another party a certain amount of money. It is a legal document that can be used in court, and it should always be in writing.
What should it contain?
A promissory note can be a very simple document, if desired, but it is better if it is thorough and contains every piece of information important in the arrangement. Here are the main things you should include if you create a promissory note for a loan you are giving:
By including all these details on the promissory note, you can avoid confusion, misinterpretation, and problems in the future.
Do you need a lawyer for this?
While you can create promissory notes on your own, it might be better to have a lawyer create it for you, especially if the loan is of significant value. By having a lawyer do it, you can make sure the document is legally valid and worded properly. If the loan is for a small amount of money, it might not make sense to pay a lawyer to write it up for you.
Another benefit of having a lawyer draw it up is that you will have someone knowledgeable with the agreement there to fight on your side if the other party fails to repay the loan on time.
One other thing to consider if the loan is large is asking the other party to pledge some type of security. With this option, the person borrowing the money will agree to give you an asset of some kind if he or she fails to repay the loan. This is a good option to include in a promissory note, because it will allow you to take legal action to obtain the collateral the person promised you if he or she defaults.
If you would like to learn more about promissory notes and ways to protect yourself when loaning money, check it out here.
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