Lenders are the ones that lend money to borrowers who need money to achieve a particular goal or to complete a specific task. Most of the money that lenders lend is used to purchase real estate property.
The lenders are at a huge risk as their money is involved and they might not retrieve their money within a certain period.
Hence the deal that is done between the borrower and the lender makes sure that steps are taken to ensure that the lender would regain his money, and in case the borrower is unable to do so the lender can claim his right on his property.
Things that Lenders should keep in mind before lending money
However, there are several factors that lenders should consider before they give money to their clients, friends or family. Some of the most important ones are mentioned below:
The lenders should make sure that proper working is done before the money is given to the borrower.
Even if the money is being given to a family member a proper paperwork should be done so that the lender can claim his money in future in case a dispute arises between the two parties.
Every aspect that is discussed between the two sides should be mentioned in the paperwork. Make sure that both the parties are clear in the terms and conditions before signing a contract.
A lawyer should be hired so that he can communicate between the parties and can act as a third party who is witnessing the deal.
This would ensure that no individual engages in fraudulent activities that can inflict financial harm to the other party.
Moreover, the borrower would know that the right party is also involved in the contract, so they will make sure that the deal is done and completed in real terms.
Moreover, the lender has the right to demand a statement from the buyer, which explains his income, expenses and current bank balance before lending the money.
The lender needs to make sure that whether the borrower is in the position to give the money back within a specified period or not.
The time of repayment should be decided mutually by both the parties, and it should be agreed that whether the contract should include a fixed rate, adjustable rate or hybrid rate depending on what is in the interest of both the parties.
The lender should determine whether the borrower has a good credit history or not. It will help the lender decide that whether the borrower would return the money or not.
The lender can get his money insured through government guaranteed programs like FHA. It will make sure that in case the lender does not receive money from the borrower the government would give it to him.
The lender should be clear and vocal about his expectations. A payment plan can be created that highlights all the major elements related to the procedure of the repayment of loans.
A copy should be given to the lender and the borrower so that both the parties are clear on the payment process. It is better to get everything in writing to avoid confusion in future.
In case the lender is lending money to the family member or a friend, it is better to discuss all possible options and solutions with the party before lending money.
Lenders should pay the amount that they can afford to lose. Don’t lend a huge chunk of money to the borrower without any proper procedure of verification and paperwork.