When banks lend an individual money, they first qualify that person to determine their creditworthiness and the likelihood of the bank obtaining a timely repayment of the loan, including interest.
If the bank determines the loan to be an unacceptable risk, the bank will require the buyer to pledge collateral, making the bank a secured lender which almost always assures them the loan plus interest will be repaid.
What if the lender is your grandmother?
When an elder is asked for a loan
Most senior citizens live on social security and have little to no savings. As living costs increase, it becomes more difficult for seniors to live on a fixed income. Children are not always able to financially assist their parents. It is far more common to have a family member or close friend ask an elder for a loan.
Don’t lend money without legal protection.
Seniors, especially those who have savings or have access to home equity, must protect themselves when they lend money to others, even if it’s a family member or good friend. Too many seniors are taken advantage of and don’t take the necessary precautions to legally protect themselves when lending their money to a loved one.
Even if the senior initially chooses not to require repayment of the loan, it is always advisable to have the essential terms of the loan in writing and properly executed. Minds change over time, and without having the proper protection right from the beginning, you may be giving up your right to ask for all or some of the money back.
Getting loan documents drafted by a lawyer is expensive
Loan papers must be drafted appropriately, and using a lawyer to prepare the documents can be expensive. As of 2020, an attorney’s national average hourly rate to draft such a document is over two hundred fifty dollars an hour. There are ways to avoid retaining a lawyer for such services. One alternative is to use a free ‘do-it-yourself” legal form.
