Personal loans are a common way to financially help out businesses, family or friends.
But what happens if they don’t or can’t pay you back? And what can you do about it as the lender?
In this article, Dispute Resolution Paralegal Jason Hayter answers these questions and more; discussing your options when a loanee defaults.
How do you deal with loan defaulters?
Well, this depends on:
- The relationship you have with the person or company that you’re lending to, and
- The terms of the agreement
Should you end up at Trial for this sort of dispute, the type of relationship you have with the loanee will affect the Court’s decision.
Before considering legal action, you should determine whether the money was a loan or a gift.
What is the difference between a loan and a gift?
A loan is the lending of money by one or more individuals, organisations, or other entities to another.
The ‘loanee’ is usually liable to repay the amount borrowed over a specific period of time, with added interest to make the lenders position more favourable.
When is a loan considered a gift?
A gift is something, such as money, which is given willingly to another without the need for repayment.
When is a loan legally binding?
Some agreements will not be presumed as legally binding by Court.
So, as a lender, you’ll need to challenge this presumption if you want to be successful at recovering a loan from friends or family.
In an attempt to avoid disputes, you should prepare relevant agreements and contracts with the borrower.
This will allow you to prove that the loan is not a gift and therefore ensure that you can recover it.