I want to borrow money - I want to loan money. What should I do?

A common transaction is where people will borrow money from a friend or family member. Often people will call and ask whether they need something in writing. If so, how formal should the document be?

First, an oral agreement or contract is binding on parties. If there is a breach of the oral agreement parties can sue. However, suing pursuant to an oral agreement always presents many challenges. Parties will dispute the terms of the arrangement such as, how soon the loan should have been paid back or the term of interest.

Second, this is why we always recommend that any type of loan agreement be in writing. It protects the parties and provides clarification.

Depending on the amount being loaned you might consider a very formal agreement or informal. If you are thinking of loaning or borrowing a substantial sum of money it`s a good idea to speak with a lawyer. A lawyer can guide you through the process and protect your rights. The absence of an agreement can cause tremendous uncertainty and confusion that will complicate the litigation process.

There are many circumstances where people will opt not to have a written agreement. Typically, if it involves a close family member.

If you are thinking of borrowing money from a friend or loaning ensure you speak with an experienced contract lawyer.

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