The past few weeks have seen a couple of consultations regarding people who have loaned money to friends or family and that person has not paid it back. In the discussions we've had, the first question I always have is: did you sign a loan agreement or other document regarding the terms of the loan? Far too often, the answer to that question is no and we're left trying to plan alternate means of recovering the money for the client.
Whether you are going to be taking the loan or making the loan, it is always good practice to get it in writing when it comes to the amount loaned, the repayment terms and the interest rate (if interest is being charged). You can do your research as to what the maximum legal interest rate is in your state (currently 16% in New York and New Jersey, 12% in Connecticut) because if the interest rate is in excess of the rate allowed, the loan may be treated as void and you can lose your ability to recover any money that you have loaned.
Obviously, if you are loaning $10 to your brother, you don't need to get it in writing, with an interest provision or some kind of security for the return of your money. However, if you are starting a business or need a significant personal loan to help you get through some hard times, it's very important to make sure that the terms of the loan are in writing and you understand all of the terms and requirements of the loan. You don't want to borrow money and then one day receive notice of a lawsuit because the loan was do in full yesterday and you didn't pay it and are now in court.