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How To Borrow $ From Family And Friends

If A Friend Loans You Money Directly As A Personal Loan

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A friend may choose to loan you the money directly. In this case:

  • Put the terms on paper -- even if the paper is as simple as an I.O.U.
  • Include a rate of interest and when interest is payable. For instance, interest at the rate of six percent per year, payable monthly, quarterly, semi-annually or annually.
  • Include when you are supposed to pay back the loan. For instance:
    • The loan could be a "demand" loan -- one that is payable when the lender demands it. (Since the lender is a friend or relative, that may be a long time from now.)
    • The loan could be payable at a certain date. (If the two of you agree, you can always change the date.)
    • The loan could be payable in installments. If the loan is payable in installments, include whether each installment is interest only, or part interest and part repayment of principal (the amount you borrow.)
  • Include whether there is a penalty if you pay early. If so, describe the penalty. (There should be no need for a penalty since your friend or relative will likely want the money back as soon as practical.)

You can find do-it-yourself forms in your local stationary store, online through such sites as offsite link or offsite link -- or you can seek the help of an attorney. The form to use is generally known as a Promissory Note, or Unsecured Promissory Note.

  • There are two types: an agreement to pay by a specified time, with or without installments, and a "demand note." Use the type that fits your agreement.
  • Make sure the form was created for use in your state so it is meets the state's requirements for legality.

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