Write a clear loan agreement when lending money; think carefully before agreeing to be a guarantor
Original: eternity4719 · source details
Original author: eternity4719 · Chinese source: · English adaptation: parveen0029. Translation and grade notes ↗
Bibliographic titles are retained in their original language.
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Cost and benefit at a glance
- Check the cost Cost ↓
- There is no cost involved. Simply use a piece of paper to list the lender, borrower, amount, interest rate, term, and repayment method, then have both parties s…
- Then the source benefit Benefit ↓
- Loan contracts should be in writing and contain information such as the type of loan, currency, purpose, amount, interest rate, term, and repayment method. This makes it easier to …
In plain terms
The loan agreement must include all essential details: who the lender and borrower are, the amount, interest rate, term, and repayment method, plus signatures from both sides. Use a bank transfer instead of cash to make legal enforcement easier. Before agreeing to be a guarantor, check whether the contract mentions “joint and several liability.” Under ordinary guarantee arrangements, creditors must first sue the borrower and exhaust all collection efforts before seeking payment from you. However, if you sign a joint and several liability guarantee, creditors can demand repayment from you directly.
This guide's cartoon · show illustration
Enlarge illustrationOriginal illustration with Chinese lettering; the English dialogue is below. Humour is a reading aid, not evidence.
English dialogue
- An unmissable opportunity!
- Let me verify it first.
Cost: what it takes
There is no cost involved. Simply use a piece of paper to list the lender, borrower, amount, interest rate, term, and repayment method, then have both parties sign it. Transfer the money electronically to leave a paper trail; never hand over cash.
Benefit: what the source reports
Loan contracts should be in writing and contain information such as the type of loan, currency, purpose, amount, interest rate, term, and repayment method. This makes it easier to pursue legal action if needed. If a guarantee contract does not specify the type of guarantee or is otherwise vague, it is interpreted as an ordinary guarantee. Under such terms, creditors must first sue the borrower and attempt to enforce payment before turning to the guarantor. Conversely, a joint and several liability guarantee removes this protection; creditors may demand repayment from the guarantor immediately (nationwide).
Conditions, limits and disagreements
Any interest charged above four times the LPR is not legally enforceable; see Section 7 for details. It is advisable to include the borrower’s ID number and label the document as a “loan agreement.” Whether or not the guarantee contract contains the phrase “joint and several liability” determines whether you are secondary to the borrower or equally liable — be sure to review this before signing.
Original references
Original bibliographic titles and links are preserved; some titles are in Chinese.
全国人大 (2020). 民法典（第六百六十八、六百八十一、六百八十六、六百八十七条）. https://www.spp.gov.cn/spp/fl/202006/t20200602_463888.shtml
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