Once the money has been transferred, the agreement comes into effect, and now it is important to keep records — on the initial transfer, and when and how much you have repaid. Repayment in standing order is preferable. The lender may have good reasons to make the loan that are not financial, for example, parents can lend money to their children for university or help them buy their first home. Of course, you will want to know why they want the loan, and this could affect your decision to give it. If you can see that they need money for a good reason but do not trust their ability to manage the money you lend them, why not offer to pay it directly where it is needed? Our unsecured loan agreement can be used for more formal agreements in which the borrower does not grant guarantees or guarantees, while loan contract: person-to-person; includes the ability to call on a third-party guarantor to ensure that the loan is repaid. Then you should think about whether the borrower can afford the credit. Will they be able to pay it back within a period of time that you are satisfied with? However, it is important to note that family credit contracts are completely unsecured, since the person lending the money is a family member or close friend. This means that there are no assets as collateral in case the family member does not repay the money. So how can you get your money back if the family member or friend doesn`t respect the agreement? Well, the only solution you will have is to go through a lawsuit or a small appeals court. This way, you can be sure to get your money back legally from your family member. Lenders may charge a relatively low interest rate. However, if you do not calculate interest or commissions below the market rate, the IRS may consider your loan as a «gift» and you, as a lender, could be on the hook of tax on the gifted. In order for your family credit not to be considered below market, you generally have to charge the applicable federal rate (AFR).

Talk to your tax advisor before you agree on an interest rate. Family Loan Agreement is a legally binding agreement between two family members that clearly sets the terms for granting credits to a family member with a clear objective and after a fixed term with accrued interest.