Wednesday, March 26, 2008

Personal Loan Terms Among Friends Can Be Negotiated

People usually think that they can only accept the terms predefined on personal loans and ignore that most lenders are willing to negotiate the terms on their loans up to some extent. But when it comes to friends, the situation may get a bit awkward. Yet, it is important to establish terms even if no interests are charged. Following are some tips on how to deal with a lending link between friends or family members:

Document Any Type of Agreement

It does not matter how close you are to the people your are lending too or you are borrowing from. Any type of lending agreement should always be documented. Spoken agreements tend to cause problems and confusions. One may honestly think that something was said when it was not and the opposite can also be true. But if the agreement was written, there will be no doubts as to the clauses of the settlement.

Moreover, if any kind of conflict should arise, the written agreement can be used to solve any debate or argument about the terms of the loan. So remember, regardless of who you are lending to or who you are borrowing from, you should always write down a loan contract specifying the loan amount, interest terms (if any), repayment schedule, collateral, and any other conditions you think that should be kept in record.

Include Some Kind Of Collateral

If you are going to lend money or borrow from a friend or family member there should be some kind of asset pledged as collateral. It does not matter if the object or property does not have a significant value as long as it has some value for the borrower (even emotional value). If the object is movable like jewelry, clothing or an adornment, the lender should take possession of the asset till the loan is fully repaid.

If the borrower needs the object for any reason, then just like with regular personal loan contracts, the collateral must be replaces with another object. Therefore it is important to include this clause in the written agreement to make sure both parties are protected by the loan terms. Moreover, any replacement of the assets used as collateral should be stated in written too to avoid future arguments about the subject.

Work On The Reasons For Needing Finance

If the one who needs to borrow is a loved one, you probably want not only to assist financially but also to help him or her avoid future financial difficulties. It is a smart idea to include as a condition for the loan, the creation of a monthly budget. Learning budgeting techniques will contribute to maintaining healthy finances since it implies controlling both the income and the expenses of the borrower.

Though this may sound as an excessive imposition, it is not really so, especially when the loan does not include interests. If the borrower is committed to protecting the relationship that ties both parties together and also to benefit from this financial assistance, keeping a monthly budget will not seem a burden but an excellent tool for solving the financial problems that motivated the sudden need for funds.


1 comment:

David said...

Personal loans are loans which are taken for personal reasons (like to buy car or house or even for vacation). Personal loan can be further classified into two categories: secured and unsecured personal loans. Secured loans demand you to pledge any collateral (having monetary value) as compared to its opponent, unsecured never have the condition of risking your collateral if you fail to pay installments in time. Approval doesn't require any paperwork or documentation and no scrutiny of credit checks is undertaken.