I have personally been involved on the lending end of informal agreements with my friends and family members, and I don’t recommend it to anyone. I’ve had to swallow my anger and resentment or face the prospect of breaking up the family over a measly $10,000.

It’s best not to lend money or borrow money with friends (or family). If some friends or family members ask to borrow money I would politely decline, unless they have some form of rock solid security to offer you.

Friends often make deals with friends to borrow money on items and repay them when they can. These are informal agreements, such as

“You keep my favorite fishing pole for $50. If I don’t pay within six months you can keep or sell the pole.”

Of all the possible ways to do a secure transaction this may be the easiest. All you need is a friend with money, who is willing to lend, and some item you’re willing to give to them to hold as security. The beauty of this arrangement is that is all informal and it’s all up to you and your friend. It can be done with a handshake and an agreement.

The major advantage to this way of doing things is that it is so very fast and easy. The main disadvantage to this way of doing things is that it can easily wind up as a model mess and a lost friendship. One important warning is that just because an agreement is informal does not necessarily mean that it is not a binding and legal agreement.

Contracts over $500, or that deal with real estate, generally have to be in writing. However, oral contracts for less than that amount are also valid and binding. But, with nothing in writing, ownership of the property and the terms and conditions for the return of the property can become confused and forgotten.