If you lend money – get it in writing

If you lend money – get it in writing - create a loan agreement and promissory note.
I’m sure that you heard the old adage never mix business with pleasure. Most people prefer to keep their personal and professional lives separate, particularly where money is involved. Poor business decisions or ventures can lead to a rupturing of a friendship and the same holds true in a money-lending situation. Many good friendships have been lost because money has been lent and then misspent or not repaid. But what about situations when there is no one else to turn to? You’re desperate for money and your best friend offers their assistance. Can you afford to turn him or her down? Or what about the reverse - one of your closet friends comes to you with a financial problem and asks for your assistance because they have no other options? Would you feel right turning them away? How can you avoid falling into the pitfalls of mixing friendship and money as either the lender or the borrower? Here are a few tips on how to approach a loaning situation between friends.
• Eliminate All Other Options Before you accept money from a friend or offer money to a friend, make sure that there aren’t any other options you can pursue. Are there other lending companies that will work for your situation?
• Have you cut back your expenses to the absolute minimum or are there some non-essential items that you can do without?
• The most important thing to keep in mind is that borrowing from friends should be your last option, not your first. If you can get it from someone or somewhere else, then you should.
• Treat it like a business arrangement. Use a company such as One 2 One Lending to document and collect your loan. A third party can prove to be very valuable in removing the emotions from a private loan.
• Most friends don’t mind lending the money and helping someone out, but it can be very aggravating to believe that money is being misspent. If you’ve borrowed money from anyone your first priority is to pay that money back.
And if you are the lender, don’t let your frustration build up - make your feelings heard and let your friend know. Introducing One 2 One Lending can act as your voice and maintain a professional relationship.

What is a promissory note?

Let's imagine for a minute that you want to borrow $5000 from your rich Uncle. After the initial shock wears off, he agrees to loan you the money. But before any exchange can take place, your uncle wants the specific repayment terms spelled out in writing and signed by both parties. This loan document would be considered a promissory note and is legally binding. No matter where you go or what you do with the money.
A promissory note should provide specific details on the amount of the original loan, known as the principal, the repayment schedule, and any applicable interest rate. It is not unusual for a promissory note also to contain details such as grace periods or penalties for defaulting. Although either party may draw up a promissory note, it's usually in the best interest of the lender to make sure all of the important elements are included. Individuals often use the services of a third party company such as One 2 One Lending to help guide them through the process and remove the emotions form the transaction. Once both parties sign a promissory note, the precise terms of that contract are the ones which will be enforced during any future legal proceedings.
A promissory note is not the same as an informal IOU. A personal IOU may acknowledge that a debt exists, but the specific repayment details may not be included. The borrower should hold onto this note until the loan becomes due, since it contains important information on interest rates and amount of the principal to be repaid.

What is an interest rate?

Those in the money lending business have the legal right to charge borrowers an additional fee for their services. For instance, if Jim borrows $100 from Jeff, that money would be considered the 'principal' amount of the loan. Jeff can ask Jim to pay back the principal plus $10, which would be considered an 'interest' payment. By dividing the $10 interest amount by the $100 principal amount, the result is a percentage called the interest rate. In this case, 10 divided by 100 yields an interest rate of 10 percent.
The interest rate of a loan is usually calculated as an annual figure, even if the terms of the loan call for a different repayment schedule. Loans for vehicles are often advertised as having a 2.9% Annual Percentage Rate (APR), even if the actual payments are spread out over 5 years. This interest rate indicates that for every $1000 loaned for the price of the car, the lender will receive an additional $29 in interest payments. This amount is added to the borrower's monthly installment payments.
An interest rate expressed as an annual percentage can help determine if a particular lender's terms are reasonable. Payday advance lenders, for example, can charge a flat fee for a short-term loan due upon receipt of the borrower's next paycheck. Expressed as a surcharge, this interest payment may not appear excessive; perhaps a $50 interest payment on a $250 emergency loan. But calculated as an annual interest rate, the result is a relatively high 20% APR. Some short-term loans have an annual interest rate of 150% or more if the loan is not repaid in full and the interest accrues daily or monthly.
An interest rate can be considered 'flexible' or 'fixed'. A fixed interest rate means that the lender can only charge the same amount of interest per month throughout the life of the loan. Many borrowers prefer to find a lender who offers a fixed interest rate because the repayment terms are predictable and protected by a contract. Because the interest rate in a fixed loan cannot be adjusted, however, many lenders charge more for the loans or don't offer them in the first place. When buying a large ticket item such as a home, a fixed interest rate is almost always preferable to a flexible one.
In the case of a flexible interest rate, lenders often tie the loan's interest to the current federal lending rates, also known as the prime lending rate. This is the interest rate charged by the federal government to major banks and other lending institutions. The prime lending rate is regularly adjusted by the Federal Reserve Board chairman, based on economic factors such as inflation or high unemployment. Lenders can legally charge borrowers an interest rate which is a few points above the prime lending rate at the time of the initial loan. If the rate changes, the interest on the loan can also be adjusted. A flexible interest rate can be beneficial when the economy is healthy, but can be more costly if the rates are raised suddenly.
Consumers should understand how an interest rate is calculated before applying for store credit cards and other charge accounts. Credit card companies routinely promote a lower introductory interest rate to attract new customers, but the standard interest rate on many cards is 21% or higher.

Skip costly errors in loans to Customers

If you go ahead, put all in writing.

It's never easy to say no to a customer. But lending a financial hand can leave you out of money and out of sorts with your customers.
According to One 2 One Lending, a company that helps formalize loans between individuals, about 14% of private loans end up in default, compared with just 1% or so for bank loans. To protect you financially, make sure you don't fall for the top four costliest mistakes individuals make when lending money to customers:

• Not being suspicious enough. When someone comes to you for a loan, your first thought should be: Why? That is, why do they need the money, and why are they asking you for help?

You also need to wonder hard why they haven't been able to get a loan from a more conventional source. Point is: There are plenty of folks in the business of lending money. If your customer can't get money from someone in the lending business, that’s worth two or three red lights going off in your head.

• Lending what you can't afford to lose. Never lend money that you truly need. The best litmus test before you say yes is to ask yourself if you would be comfortable giving the money away.

• Skipping the formalities. Handshakes are not good enough for sealing a loan agreement. Put everything in writing. In fact, it's a good way to size up the credibility of the person who needs your money: They should tell you right off the bat that they want to sign a formal loan document with you that spells out the terms of the deal. Once you have it filled out, all parties should sign it in front of a notary; it's just a nice bit of formality to have in your pocket in the event anything goes wrong. In the document you want to spell out the specifics: What interest rate you will receive, when the payments are due, how much is due with each payment and what penalty will be paid for a late payment.

Servicing your loan

One 2 One Lending offers help keeping your loan on track for a successful outcome. The lender or borrower may choose to have One 2 One Lending send the borrower email reminders before each payment is due. As a third party, One 2 One Lending removes the emotions that are potentially related to this type of constant communication. Additionally, the borrower or lender can have One 2 One Lending bill and collect payments on behalf of the lender providing an additional tool in maintaining a good payment history.