You don't have to read "The Merchant of Venice" to know that private loans are a bad idea. The messy contracts, the family issues, the unruly clean-ups after defaults it's enough to make personal bankruptcy look downright rosy.
However, if you must do a good deed in a naughty world, you had better make the rules in advance. Several Faustian financial services groups have emerged to help friends and family members loan large sums of money to one another, but those services can cost hundreds of dollars not to mention the thousands you'll spend on lawyers to figure out which party has to spend the hundreds.
So, shunning lawyers, Shakespeare and Faust and any attempt at serious advice on this topic (have you gotten the point yet that you shouldn't borrow/lend money from/to friends yet?) we've drawn up our own free one-size-fits-all lending contract to make certain all your private loans go smoothly. We're about 20% sure it will hold up in court.
Read on for real advice on lending to family members or continue on.
This is a LOAN AND SECURITY AGREEMENT between LENDER JONES (hereinafter "Lender"), a generous and gullible friend with too much disposable income, and BORROWER SMITH (hereinafter "Deadbeat"), an English major. The parties agree as follows:
SMFor the value received, Deadbeat promises like, seriously promises to pay to the order of Lender, in legal tender, gold or T.G.I. Friday's Gold Points, the sum of $[INSERT SUM HERE], with interest on the outstanding balance at the annual rate of 4.5%, or another rate to be determined at the completion of Lender's divorce proceedings.
This AGREEMENT begins on [INSERT DATE HERE] (hereinafter "the end of the friendship"), and all obligations set forth herein are measured from this date. This loan will be repaid in equal amortized monthly payments of $[INSERT AMOUNT], with the first payment due the day the ambient temperature of Hell drops below 32 degrees Fahrenheit*.
Each additional payment will be due on the same day of the next following month except November, and possibly December and January, on account of the holidays and all until paid more or less in full. All principal and interest shall be repaid within a period lasting no longer than seven times Lender's age in dog years.
In the event of a default under the terms of this AGREEMENT, upon 3,650 days following Lender's written demand, he may at his discretion declare all remaining principal and interest immediately due and payable, at which point Deadbeat may: (a) pay the owed amounts in full; (b) adopt a passable Cockney accent and become Lender's indentured servant for a period of four hours; (c) laugh heartily en route to Mexico; or (d) feign ignorance, blaming: (i) the United States Postal Service, or (ii) the unctuous ghost of Saddam Hussein.
In the event Deadbeat does not comply with the above terms of his default, that would be so not cool.
Should legal action be brought to recover or secure payment of the debt, related legal fees and costs of suit will be charged to the loser of a coin toss conducted by National Football League referee Ed Hochuli. Should Mr. Hochuli be unavailable for a period of 2,317 days, the coin toss may be carried out by either (a) NFL referee Bill Leavy**, or (b) Judge Judith Sheindlin (hereinafter "Judge Judy"), whose trailer must contain three varieties of SnackWells cookies.
All payments and performance of the obligations under this AGREEMENT shall be made at Lender's home, presumably where Deadbeat has taken up residence.
This AGREEMENT shall be governed and interpreted under the laws of the State of [INSERT STATE HERE***].
________________________________BORROWER SMITH ("Deadbeat")
________________________________LENDER JONES ("Lender")
* In European Hell, 0 degrees Celsius.
** Contingent upon the expressed written consent of Mr. Hochuli.
*** Valid only in states beginning with the letters "A" and "K."