When lending money to a friend you should always determine how long you want the agreement to last, when you intend the debt to be repaid and whether or not any interest should be payable. However there are wider considerations to make too. When making a loan to any individual, whether a friend or not, the loan could be classified as “consumer credit” lending and therefore caught by the regulations of the Consumer Credit Act 1974.
The regulations of this Consumer Credit Act specify that unless the agreement is exempt, all consumer credit agreements including private or informal loan agreements will be classified as regulated agreements for consumer credit purposes and therefore may require the lender to obtain authorisation from the Financial Conduct Authority. If a lender enters into a regulated consumer credit agreement without authority then they will be committing a criminal offence.
Before agreeing to lend to a friend, we recommend you determine whether or not an exemption – details can be found here – may apply. If the arrangement would be classed as a regulated agreement you could seek advice to determine if any further exclusions could be applied.