How to Document a Loan to a Friend
- 1). Notify your friend that the loan is contingent on him agreeing to sign a promissory note. Explain this is to protect both of you since it will contain the terms of the loan and the repayment schedule. Agree to the loan if he accepts.
- 2). Negotiate the terms. Calculate interest, if any, and add it to the amount of the loan. Determine the details of the payment schedule, such as whether it will be weekly, monthly or one lump sum. Set the due dates and the method of payment, whether electronic transfer, check or cash with a receipt given. Discuss any penalty if the payment is late, such as a late fee, and how long before it is late before judicial action is taken.
- 3). Write down the terms of the agreement before you prepare a typewritten document for signature. Review all terms and ensure they are clear and easily understandable.
- 4). Type "Promissory Note" at the top of the paper. Prepare the first clause, which should state the name of the lender and borrower, amount of the loan and the date the money will be transferred to the borrower.
- 5). Compose the repayment terms of the loan next. Type the amount of each repayment and when it is due. Include the total schedule of repayment in the clause.
- 6). Add another clause for interest. Include the method of calculation for the interest and show the total cost of the loan with the interest included.
- 7). Bold the penalty section. Write the actions to be taken if the payments are late or not forthcoming. Include a small line for your friend to initial this section.
- 8). Prepare the signature line for both of you at the bottom of the promissory note. Type the date above the signature line.
- 9). Give the note to your friend to review. Ask if there are any changes he would like to the agreement. Make the changes to the note, if you agree to them.
- 10
Provide the final note to your friend to sign and date, and initial the penalty clause. Sign and date the note yourself. Give the money to your friend and have him count it. Give him a pen to handwrite the amount that he received and the date. Make a copy for your friend and keep the original in your file.
