How to give loan to someone legally ?

455 votes

Two Legal Options to Document the Loan

1. Promissory Note

• A simple legal document acknowledging a debt.

• Includes basic terms like loan amount and repayment timeline.

• Can be made payable on demand or within a specific timeframe.

2. Detailed Loan Agreement

• More comprehensive and formal.

• Covers loan amount, interest rate (if any), repayment schedule, default clauses, collateral (if applicable), etc.

• Recommended for larger sums or longer durations.

LawRato LawRato

897 votes

Money lending as per law can be done only under license. But if you are casually lending money to some one, as you have asked, you can get a signed cheque of the person borrowing as security. But to be on the safer side you can also get a promissory note executed by the person borrowing. So that an action for return of money can be initiated.

Advocate Murugan E.M. LawRato

688 votes

A loan to a family member or a friend is usually an unsecured loan and the terms and conditions are basically undefined or indeterminate and demanding payback is often difficult. And if the loan goes bad, the relationship also sours. Moreover, such a loan is usually interest-free. This means you lose money. Neither a borrower nor a lender be; for loan oft loses both itself and friend.You should not pay it in cash is the first very precaution you need to take. Pay it through only Bank a/c. Before paying take a letter of request for this loan addressed to you by your friend, then only issue an a/c payee cheque against receipt issued by your friend admitting the debt and promise to pay along with interest if any. Obtain acknowledgement from friend of having received funds . let him give in writing when he will repay the loan . There are two ways to do this - a promissory note and a detailed loan agreement.A Promissory note is a written promise to pay a debt. It is a financial instrument, in which one party promises in writing to pay a determinate sum of money to the other, either at a fixed, determinable future time or on demand of the payee subject to specific terms and conditions.A Loan Agreement (Loan Contract) acknowledges that there is a loan, specific promise to pay and also states that the lender has a right to recourse. Example can be a FORECLOSURE. If you want to have a right to recourse, then go for Loan Agreement instead of a Promissory Note.Also note that Party to the contract should not be a Minor ( i.e. below 18 years of age or 21 year of age unless specified by court) The conditions in the agreement should not be against the law. The debt given is contracted either through a promissory note or loan agreement as explained above. This remedy to get back your money from your friend or relative also applies to cases where a third party has given a guarantee on the money which you lent to your friend or relative. Where a lender of money wants to get his money back from his friend or family he can file a summary suit. When a person dishonestly induces another person by deceiving him to either deliver any property to any person, including himself, or to make, alter or destroy the whole valuable security or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, he has committed the offence of cheating. Cheating is punishable under Section 420 of the Indian Penal Code, 1860. The offender shall be punished with imprisonment, simple or rigorous, for a term extending up to seven years, and shall also be liable to pay fine. Dishonest and fraudulent intention must be established to make the defaulter liable of a criminal offence, whether criminal breach of trust, or cheating. Failure to do so would leave the debtor with a recourse to approach a civil court only. In a case where the defaulter has no intention to repay the debt but has agreed to the terms of repayment with a malicious intention to induce the debtor to part away from his property, he has committed the offence of cheating.

Advocate Ajay NS LawRato