It is not uncommon for family members and friends to approach their loved ones for financial assistance when they may be facing financial difficulty. It is more common than not for the terms of these agreements to be disputed at a later stage as they generally are formed verbally between the parties. In some circumstances, it may be easy for the debtors to claim that the monies loaned were gifts and not intended to be repaid. Recovering money that is owed to you can be an expensive and timely process if these issues are disputed and if the debtors cannot afford to pay the loan back.
How can you protect yourself in these situations?
Before providing a loan to a family member or friend there are certain steps you can undertake to ensure all parties to the arrangement have formed an agreement in relation to the loan you are providing them. It is vital that all essential terms are agreed between the parties without any ambiguity.
The main protection includes entering into a written loan agreement that consolidates what has transpired verbally. This may include:
- The amount of the loan;
- The term of the loan;
- Any interest payable on the loan;
- How and when the loan is to be repaid; and
- What are the consequences of non-compliance?
Although verbal agreements are still binding and enforceable, they are considerably harder to prove when the terms of these verbal agreements are disputed. It is in your best interest to enter into a loan agreement to address the above points to ensure that all parties are on the same page. It is more common than not that parties differ in their interpretation of what was verbally agreed upon and the only way to resolve these uncertainties is by relying on written agreements.
Having a written loan agreement makes the process of recovering the monies owed much easier and clearer to all parties including the court, should you have to resort to litigation. In the end, it is much easier to enter into a written loan agreement rather than going through the courts to establish whether the money provided was a loan or a gift and if a loan, what were the terms of the agreement including what was provided and when was the money due.
If you are considering loaning money to a friend or family, call one of our experienced lawyers now on (02) 9920 1787 to find out how you can protect your interests, no matter how small or large the loan amount may be. Pannu Lawyers are highly experienced in civil disputes involving debt recovery from individuals and companies in breach of contract in situations where money has been loaned or services have not been provided as agreed.
