August 8, 2008, Newsletter Issue #127: Promissory Notes For Loans to Relatives

Tip of the Week

If you lend money to another person with the expectation that they are going to repay you, it is in your best interest to require the individual to sign a promissory note. Legal financial documents such as promissory note forms play an important role in protecting the interests of the lender. If the terms of a loan are not specified on a promissory note, the lender basically has no way to enforce repayment.

Money issues can become a significant source of friction among relatives, and it is important that the terms of family financial transactions are spelled out clearly for all parties involved. If a family member who wants to borrow money from you balks at the idea of signing a promise to repay you, that should be an obvious sign to you that the likelihood of getting your money back is slim.

If you can afford to “give” the money with no reasonable expectation of repayment, it is certainly your choice to do so. However, if you expect repayment, you need to put the agreement in writing in the form of a promissory note.

When each party involved is clear on the details of the loan agreement, there is a reduced likelihood of problems developing. When making a loan to a relative, the promissory note template forms available on Rocket Lawyer's website can provide a practical and simple solution to drafting legal documentation that specifies the terms and conditions of the loan and the manner in which it should be repaid.

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