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lending money to friend

Hi All

I want to lend money to one of my friend. Its around 1 lac. What kind of documents i need to prepare? I am not a registered money lender. Can I take any collateral? I also would like to charge some interest? How much interest can i charge?


 13 Replies

bhagwat patil (Property due diligence 9422773303)     08 April 2010

you cannot charge interest.

Suryanarayana Tangirala (Advocate)     09 April 2010

U can get a Promissory note executed,what do u mean by collateral?

Rajesh Singh (Advocate)     09 April 2010


 Take in writing from your friend with all the details of his and give the friendly loan in front of 2 witnesses with there acknowledgement on the paper not necessary on stamp paper it can be on ordinary paper also. further give the loan amount by cheque , avoid giving the amount by cash. this will help to prove that friendly loan was given to your friend in the court and legally you can prove in case on non refunding of the amount. For interest mutually you can decide and same can be put on the paper.

1 Like

Arati Gawde ( Legal )     09 April 2010

Agree with Adv. Rajesh Singh

Gundlapallis (Advocate)     11 April 2010

You can lend money on execution of a promissory note.  Witnesses are not necessary because a promissory note is negotiable instrument (for your understanding its legally treated on par with a bank cheque).  But, if you both desire you can have one or two witnesses - no harm.


Now comming to your concern about 'money lender' status, one time hand loan to a friend will not give you money lender status - dont worry about it.


Interest will be mentioned in the promissory note itself - (few states have made rules on the max. rate of interest to be charged even by private parties - Check this one aspect)  If there is no such enactment in your state its your wish - until it is reasonable.


For additional security you can ask for an undated cheque.   If somebody is willing to stand as a colletral obtain a cheque from him for the full amount with interest and write it down on a paper the undertaking of the colletral. 


N RAMESH. (Advocate Chennai. Formerly Civil Judge. Mobile.09444261613)     11 April 2010

I agree with Mr.Rajesh singh.

You can lend the money in the presence of two witness.

Give the money by way of cheque.

Obtain promissory note with signature of witnessess.

If required you can get undated cheques as security.

If you take any immovable property as collateral, it will amount to mortgage and requires registration.

As far interest, it depends on whether the laon is for commercial purpose or not. It can be mutually agreed. 

Sujo Joseph (Manager)     19 October 2010

Hi Sir, I have given advance of 50000rs for a real estate for purchasing a plot in chennai. They made a total trick out of me and now i need my money back. They told me that they will give it after 2 months. Can i ask them to write a Promissory note for 50000rs? Is it wise? Also for your information , i have given money by cash and not cheque. Please advise me...

bhagwat patil (Property due diligence 9422773303)     19 October 2010

Followup is needed, legal course is not  advisable.

Sujo Joseph (Manager)     19 October 2010

Can i make him to sign promissory note for 50000rs ? Is that an advantage for me to get the money? Also what is the legal course not advisable?

abhishek (law )     22 October 2010

Besides the all suggestions about promissary notes or undated cheque and payment through cheque; one more thing show the amount in ur income tax return with interst shown under the head of other income so that in case of dishonour of cheque u can prove the due against ur friend. take an affidavit from him about the payment and way of return but not show that undated cheque as security in that affidavit.

Aftabhussain (Lawyer)     23 October 2010


Since the said person had received the said money from you under some trust, you may file criminal complaint againt him moreover you can also get promissory note or blank cheque from him. You had not executed any agreement at the relevant point of time but you can still prepare it and execute it as per your agreed terms.


Thanking You.

Sujo Joseph (Manager)     27 October 2010

The real estate and the seller of the property has shown me the wrong plot. The original plot is really a bad one which is not worth to sell.

I have given an advance of 50000rs for the seller and they are not giving it back. I am very tired asking them.

I signed the sale aggrement on 8th of this month. The aggrement is valid for 30 days. Please help me.. I would be grateful.


Sudhir Kumar, Advocate (Advocate)     04 December 2011

First you decide whether you have to maintain friendship or not.  if you want to maintain freindship then give money on charity or give no money.  If you give no money the freinship will remain after some bikering if you give charity the freindship will remain for some time and later he will pay back you charity by worst kind of enimity. If you want your money back keep jewellery as a security and no document will be needed.  if you want to loose friendship and rund around like a begger get a pronote well drafted or PDC. A pronote  need to be clear to the identity of lander and borrower, the amont in cash only, the date of refund.

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