Ages ago, when civilization was still young, and the medium of writing had not become a popular form of communication because there was no proper way to write things down, contracts were based on mutual promises and word of mouth. This often led to misunderstandings and unfair practices on the part of one or more parties.
As civilization developed, human beings realized that we needed to have witnesses to contracts. They make sure that none of the parties involved broke their promise and fulfilled their duties and obligations present in the contract. But without written agreements, there was still a problem of witnesses colluding with either party to the contract or forgetting some crucial detail of the contract.
As civilization developed further and the medium of writing things down became more frequent, human beings started to write down contracts. Since then, through the experience of perhaps centuries, we have learned how to formulate a simple agreement between two parties. Contracts ensure that all the details of the Nevada personal loan are relevant and included. Both parties agree to the terms mutually.
If we talk about contracts for loans, then there is a need to formulate the agreement very carefully to include all the details relevant to the loan contract.
Why Is It Essential to Include All the Relevant Details?
To make sure that nothing substantial is left out of the contract, which may create confusion or even conflict for both parties later and to make sure that all the parties involved in the loan contract understand their rights, duties, liabilities, obligations and the consequences of non-fulfillment or breach of the contract. It is essential to get all of this in writing to prevent any confusion later.
Furthermore, when things are signed in this manner in a formal contract, it makes the contract binding. In case of a breach of contract, the aggrieved party can follow due legal process.
When it comes to loaning out money to friends and family, it’s like walking on thin ice because if it goes well, then it goes well. Still, if misunderstandings develop or if one party fails to meet the obligations of the contract, then this may harm the relationship forever. Some people believe that money should never come between relatives and friends as it always ends up spoiling relationships. Realistically speaking, friends and family are probably the first ones we turn to in our hour of need. They understand our difficulties better than financial institutions. They may lend us money at terms that are more lenient than those being offered by the financial institutions.
If there is a need to borrow money from friends or family members, then it should be done in a thoroughly professional manner, and a loan agreement between family members or friends should be signed. This promissory note or agreement should have everything written down in the contract transparently. Some vital components of a personal loan agreement between friends and family members have been mentioned below.
Identify the Parties
It is crucial to identify the parties to the contract very clearly. While formulating a loan agreement, mention both the borrower and lender clearly on the contract document, with full names followed by some identification number such as social security number. In addition to this, attach copies of the social security cards or identification documents of both parties with the contract.
State the Amount Borrowed
Once the parties of the contract have been identified, it’s crucial to state the amount borrowed in both words and numbers so that there is no confusion or misunderstanding.
Date and Duration
While noting down the amount borrowed, it’s equally important to write down the date on which the money was lent.
If applicable to the contract, then the loan term should also be mentioned. The loan term is the duration for which the money has been lent out. For example, the loan term can be six months or two years, etc. If the lender has agreed to extend the loan term in the future, then this must be added. If no such agreement has been reached or if both parties have left this option open for the future, then this should be mentioned in clear terms. If the lender has refused to extend the loan term, then this should be specified explicitly.
Interest Rate
If applicable to the contract, then the interest rate on the loan should be noted. If the loan is interest-free and no interest is being charged, then this should be mentioned explicitly.
Repayment
Clearly outline the repayment schedule. Mention when the repayments will begin and the exact amount of reimbursement and whether the repayments will be monthly or periodic. If the payments are recurrent, then clearly mention the period after which each compensation will fall due.
Witnesses
It is important to have witnesses to the contract. Otherwise, either party can claim that the deal is either fabricated or was signed under duress. It is suggested to have at least two witnesses. Mention the names of the witnesses clearly, attach copies of their identification documents, and get their signatures.
Non-Performance and Breach of Terms Clause
This clause is crucial to the contract. The non-performance and breach of terms clause contain all the situations where the lender or borrower may consider either party in violation of terms. Therefore, it is vital to agree on these terms mutually and state them clearly in the contract so that both parties know which actions will be considered in breach of terms. For example, failure to repay the loan for six months may trigger the clause. If no such provision has been included, then mention it clearly, too.
Signatures
Both the lender and borrower should sign off the contract with their signatures, and the contract should be attested from a notary. The copies of the contract should be kept with both parties.
These were some of the vital and bare minimum components of a simple loan contract between family members and friends. More sections can be added according to the terms and conditions of the agreement.