Basics of Peer to Peer Lending
When making loans to family and friends, protect your relationship by getting it in writing.
When you borrow money from someone, especially someone you know, a lot of questions come up. It`s a very uncomfortable process for both the Borrower and the Lender. WikiLoan provides tools and promissory note to make the process go smoothly without embarrassment on either side.
Basics of the Promissory Note
A promissory note is just what it sounds like, a written promise to pay money to someone. The Note exhibits specifics that the borrower and lender agree upon like the amount of the loan, the length of time to repay the loan, the interest rate, monthly payment and the repayment schedule. All involved parties sign the document to make it a legal instrument.
Repayment
WikiLoan makes it simple. We provide a loan calculator that allows the borrower to determine what size payment they are comfortable with in equal monthly installments over a specified number of years until the loan is repaid.
Unsecured Loans
WikiLoan supports Unsecured Promissory Notes. An Unsecured Promissory Note is a legal loan document that serves as a promise between parties to pay back a loan on agreed terms.
Cautions
When executing a promissory note, there are two pitfalls to be aware of:
- Be sure to check the Usury Laws in the state where the loan transaction is taking place. Most states have guidelines about interest rate limits and loan limits. Be sure to check the section called "Usury Laws" and/or talk to your Secretary of State for more information.
- The IRS has guidelines on interest-free loans and may treat them as gifts, which may cause a tax burden for the lender.
Please be sure to charge interest by following the "Applicable Federal Rates" guideline issued by the IRS. For July 2010 they are:
|
Annual |
Semi-Annual |
Quarterly |
Monthly |
| Short Term AFR (Less than 3yrs.) |
0.61% |
0.61% |
0.61% |
0.61% |
| Mid Term AFR (More than 3 and 9yrs or less) |
2.35% |
2.34% |
2.33% |
2.33% |
| Long Term AFR (More than 9yrs) |
3.94% |
3.90% |
3.88% |
3.87% |
|
|
