How can I secure a personal loan to a friend?

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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

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 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.


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