An agreement documenting a lending arrangement between related individuals, such as parents and children or siblings, outlines the terms and conditions of the financial transaction. This instrument specifies the loan amount, interest rate (if any), repayment schedule, and consequences of default. For example, a parent might lend a child funds for a down payment on a house, using a formal written agreement to establish clear expectations for repayment.
Such arrangements can be advantageous for both parties involved. The borrower may benefit from more favorable interest rates or repayment terms compared to traditional lending institutions. For the lender, it provides a structured method for assisting family members financially, potentially generating a return on investment through interest payments while maintaining clear financial boundaries. Historically, these agreements were often informal, but formalized documentation mitigates potential misunderstandings and protects familial relationships.
