Many of us think of lending money to a family member as something we would readily do in someone’s time of need. You may also think that there would be no need for a formal loan agreement or any legal advice if you’re just lending to a family member. However, as with any money loan, it’s really important to seek appropriate legal advice and have a formal loan agreement drawn up, signed by both parties, to protect both the lender and the borrower.
Do I need legal advice?
While it might seem like an informal arrangement, seeking legal advice can be a very good idea before loaning any amount of money to a family member. A solicitor will be able to check the circumstances of the proposed loan to ensure that everything is legal and above board for both parties. Legal advice will ensure that the loan is being carried out ‘by way of business’ – that is to say, making sure that both of the parties in question are acting legally and safely.
A solicitor will also be able to assist you in drawing up a mutually agreed loan agreement. This is a legally binding document which provides both the lender and the borrower with all of the details of the loan so that each is aware of their position and responsibilities.
Organisations such as the Citizens Advice Bureau also offer further information on choosing an appropriate loan
Protection for both parties
A loan agreement should contain all of the contact details for both the lender and the borrower. It should also specify all of the details of the loan, such as how long a period the money is being loaned for, any interest that is payable on the loan, what would happen if the borrower missed a repayment, etc.
Having a robust agreement in place also provides the lender with a fallback should it prove difficult to get the money back on time or in full at the end of the specified loan term.
