How can I secure a personal loan to a friend?

UPDATED: Sep 13, 2011

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How can I secure a personal loan to a friend?

I am about to loan a friend some cash and he has agreed to pay back with interest. What kind of documentation do I need to secure this transaction?

Asked on September 13, 2011 under Bankruptcy Law, Texas


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

What do you mean by "secure"? If you just mean to document it clearly, so everyone knows what the terms, conditions, etc. are, simply draw up a loan agreement stating how much you have loaned, the interest rate, when payments have to be made, how large each payment should be, and what happens in the event of default--e.g. can you get legal fees and court costs if you have to sue him?

If you mean secure in the sense of having property stand as collateral for the loan, you should consult with an attorney to help you. The short answer is that you can have him put up property which will stand as collateral and which you will be able to take in the event of default, like a motor vehicle, a stamp or gun collection, bonds, computers or a big-screen TV, etc. but 1) you want to make sure that all the requirements for perfecting a security interest are complied with (all the paperwork done right) to make sure you will be able to take the property, and 2) you'll want to do a search of previous filings or liens to see if anyone else already has a security interst in that property.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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