How to Lend Money to a Friend in India Legally and Recover it

Mukesh Sharma / 2023-04-03T11:05:36.000Z / Money Lending

When you lend money to a friend or member of your family, and they don't return it, it is upsetting. Before you contact the authorities, you might spend hours searching websites for legitimate methods to get your money back. It's challenging not to get frustrated in this circumstance, but I have devised a simple method so that you may assist both yourself and your buddies.

This short and simple article will show you how to lawfully lend money to a friend in India while maintaining your ability to recover your money back.

Stop spending money you don't have and start getting it back!

How to lawfully loan money to a friend in India

Things to keep in mind when giving friends money

Lending money to friends via P2P lending is a fantastic idea. On this website, lenders and borrowers may interact and negotiate loan conditions.

Before you can go forward with the transaction, there are a lot of questions you need to address when it comes to lending money. Here are a few examples:

  • How much is the loan?
  • How long will it take to pay back the loan?
  • What rate of return will my investment have?
  • Who will be in charge of debt repayment?
  • What happens if I don't make my payments on time?

Knowing the answers to these questions is crucial. Before making the transaction, it could be prudent to speak with a financial advisor if you are unsure of what these phrases represent and what they might involve.

What is the amount of the loan?

A: You should be able to determine the solution to this question on your own. The loan amount may range from five thousand to five lakh rupees or more. What you are borrowing for and how much money you need to borrow will decide it.

How long will it take to pay back the loan?

A: The kind of loan you are making and the amount you need to borrow both play a role in this. However, the majority of loans have a period of three to five years or more and demand complete payback when it is over. The conditions of your loan arrangement will determine how long it takes for it to be returned. Monthly payments could be necessary for a loan with a shorter payback term.

How much interest can I expect to make on my investment?

A: Subject to the conditions of your loan arrangement. Generally speaking, loans with lower interest rates have longer payback terms. This is due to the fact that they have a reduced risk of default, which allows the lender to be certain that they will profit from the interest and not the loan itself.

Who will be in charge of debt repayment?

A: Either the lender or the borrower. There are three distinct loan types:

  • The lender is in charge of paying back the money: This may refer to a certain kind of credit card or another kind of loan with a short payback period, such as a payday loan, that has a high-interest rate.
  • The loan will need to be repaid by the borrower: This applies to conventional bank loans as well as student loans.
  • The loan will be repaid by both the lender and the borrower: This is the most typical kind of loan product, similar to a mortgage with interest and principal payments.

What happens if I don't make my payments as agreed?

A: The lender may seize your collateral, such as your automobile or other personal property if you default on a loan payment. You will be liable for any expenses incurred if this is the situation.

What conditions must be met by law before giving money to friends?

A few legal conditions must be met before lending money to friends. These regulations will be covered in this article along with how they impact personal loans.

Legal prerequisites

  1. The borrower's approval is required before the loan may be made.
  2. The borrower must be able to pay back the loan.
  3. If the loan is not repaid within a reasonable amount of time, often one year, the lender must be able to collect on it.
  4. No funeral or burial expenses for the borrower may be covered by the loan.
  5. The lender is required to make every effort to prevent abusing the borrower.
  6. A well-written contract with understandable terms and conditions must be provided by the lender.
  7. The lender is required to fully disclose and disclose the interest rate to the borrower.
  8. The lender must stick to their word and provide the loan they promised, without charging too much interest. Client's Rights
  9. The prospective loan amount, terms and conditions, interest rate, and repayment schedule should all be disclosed to the borrower.
  10. the borrower has the option to bargain with the lender on a number of contract clauses. Both parties may agree that a loan will be returned, for instance, if payback would take six months.

What is the most dependable and secure approach to lending money?

A developing trend in the financial industry is peer-to-peer lending. For people who desire to invest their money in various ventures and enterprises, it is seen as a low-risk, high-return investment option.

Peer-to-peer lending networks are the greatest approach to lending money. Peer-to-peer lending is not exactly a novel idea. In actuality, it has existed for a long time. P2P lending has, nevertheless, gained more traction lately as a result of market need. With this sort of finance, you may invest your money via a middleman company that makes loans to other individuals.

Because they are not controlled by a single nation or central bank, they are more secure than conventional banks. The loans they can issue and the interest rates they may charge are thus less constrained.

They provide a range of services, including mutual funds and insurance for back-to-back loans. Because its loans pose less of a risk to financiers than conventional banking practices, the firm believes that its business model has a good chance of success.

Since the particular lending site sets the interest rates, you may never be certain of what they will be. There is a lot of variation amongst platforms, and some of them give yields of over 10% annually with no chance of default.

The Legal ways of Lending Money to Friends in India or Purchasing Goods from Them

Lending money to friends or purchasing goods from them in India carries a number of legal hazards. This is due to the murkiness of the legislation and regulations. The likelihood of not receiving the item back is quite high.

especially if you are purchasing jewellery, automobiles, or other items from acquaintances in India. Courts in India are unlikely to be of assistance in cases involving money or property unless the relationships between the parties are solid and the lenders have a proven method of protection for repayments, such as an escrow account or a lien.

The hazards of borrowing money from friends in India or purchasing goods from them if they do not have a bank account and reside abroad are among the dangers.

If a borrower misses payments, some lenders may not know who they are lending to or may not have access to legal action. Lenders in India should generally use extreme caution when extending credit or making a purchase from a stranger.

Dealing with several individuals who could represent themselves as lenders or advertise "loans available" on their websites or social media profiles is another danger. There are dangers involved with taking out a loan, just as there are with any loan. 

What are the dangers of making a loan?

The hazards associated with lending money are many.

Collateral harm is one of them. This is the risk associated with lending money to a person who has poor credit or no credit at all since you run the danger of losing your collateral if they don't repay the loan.

You won't likely be able to get a loan from a financial institution to buy a property if you have poor credit since your credit score won't be high enough. As a result, you will need to discover someone whose credit is not just excellent but also high enough to qualify them for a loan to pay for the house.

This position might be problematic since you run the risk of having negative equity, which means that you are paying more for the property than it is worth.

Lending money carries the risk that the recipient will not repay the loan in full. If this occurs, you may be forced to pay legal expenses to pursue the debtor for the money you are due in addition to losing access to your assets.


We covered how to lend money to a friend in India legally and get repayment in this post. We also spoke about the many loan choices offered in India and how to make advantage of them. We have now covered the legal means through which you may easily lend money to a friend in India. If you want your buddy to return the money at any point, you may use these techniques.