When it comes to lending money, it is important to have a clear understanding with the borrower about the terms and conditions of the loan. This is where a verbal agreement comes into play. A verbal agreement is a spoken agreement between two parties that outlines the agreement`s terms and conditions.
While verbal agreements may seem less formal or binding than a written contract, they are still legally enforceable in many cases. However, taking precautions like recording the conversation or having a witness can help to protect both parties in case of a dispute.
So, what should you include in a verbal agreement when lending money to someone?
1. Amount and Payment Terms
First and foremost, the amount of money being lent and the terms of repayment should be clearly stated in the agreement. This includes the amount of interest being charged if any, the payment schedule, and the consequences of late or missed payments.
If the loan is secured, then the collateral or asset being used as security should be outlined in the agreement. This is important in case the borrower defaults on the loan, as the lender may need to repossess the collateral to recoup their losses.
3. Duration of the Loan
The duration of the loan should also be specified in the agreement. This includes the start and end date of the loan, along with any penalties for early repayment or extension of the loan`s term.
4. Communication Expectations
Communication expectations should also be outlined in the agreement, including how often the borrower will provide updates and how the lender will be notified of any changes to the loan`s terms.
5. Dispute Resolution
Finally, it is important to include a dispute resolution clause in the agreement. This outlines the process for resolving any disputes that may arise during the loan agreement`s term.
In conclusion, while a verbal agreement may seem like a casual arrangement, it is important to treat it with the same seriousness as a written contract when lending money. By including essential terms and conditions in the agreement, both the lender and borrower have a clear understanding of the agreement and are protected in case of any disputes.