Friendly Loan

Posted in Finance, Accounting and Economics Terms, Total Reads: 484

Definition: Friendly Loan

Friendly loan is a loan given to friends, relatives, family members or associates without any legal documentation or authorized procedure. It is often risky agreement as there is no legal evidence of the contract happening between the two parties, so in case of default the concerned party cannot take any legal help from the court or police as there is no legal evidence of such an agreement happening between the two party. Such cases has to be solved then by mutual understanding between the two parties.

This type of loan basically works upon trust and verbal agreement as the borrower and lender both have faith in each other.

No collateral is even taken against the loan in most of cases and if asked for collateral then it may be some blank cheques or as agreed by the two parties.

Even in some cases it may happen that even after the repayment of loan the other party refuse to give back the collateral which was given against the loan, so in such cases also no legal action can be taken.

For example: Jack and Jill are childhood friends and know each other very well. Now, jack is in financial turmoil and needs an immediate amount of 50000$ so he goes to Jill and asks her to lend him 50000$.Jill agrees to pay him the required amount without doing any legal agreement as being a friend she has faith on him. Now if Jack defaults in paying her then she cannot go to court regarding non-payment as she has no written agreement on it .Legal authorities have no role to play in resolving her case.

Hence, this concludes the definition of Friendly Loan along with its overview.

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