Borrowing money from family


If I am borrowing some money from a family member instead of taking it from the bank which I need to return over a few years is there a document we can create that will stand good in the court of law incase of any conflict in the future. Please help clarify. Also is there a cap to the funds that a family member can lend or borrow. These transactions are going to be through NEFT and CHQ.
 
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Hi Vilintina,

There are two ways through which you can create a legal document as a proof of the money borrowed, when it should be returns and various other conditions.

  • PROMISSORY NOTE (or)

  • LOAN AGREEMENT

 

A Promissory note is a legally written promise to pay a debt at a fixed time, a determinable future time, or on demand of the payee, subject to certain onditions. It is a financial instrument, in which one party promises in writing to pay a determinate sum of money to the oher at a time mentioned in the Promissory note. This instrument comes under Section 4 of the Negotiable Instruments Act, 1881, and has to be signed by the borrower.

 

While a Loan Agreement (or a Loan Contract) acknowledges that there is a loan, specific promise to pay and also states that the lender has a right ti recourse. 

 
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