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I hope the title itself is clear. I want to lend money to a friend, are there any legal ways that I can make some sort of a 'contract' for the return? What is the most practical way?

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    Make sure the contract says what the consequences are for not returning the money by a certain date (late fines, interest, etc.). But your friend might be offended that you ask him/her/them to sign a contract, and they don't need to obey the contract either, unless you get a court to enforce it (which costs money and won't guarantee you get anything back) or you hire debt collectors (which costs money and won't guarantee you get any money back). Any option will put a rift in your relationship with your friend without you being sure you get anything back. Lend only if you're ok with no return.
    – Nike Dattani
    Commented Mar 2, 2022 at 13:16
  • That's exactly what I thought as well. Thanks!
    – aimedaca
    Commented Mar 2, 2022 at 13:37
  • There's a Saying in Germany: "Bei Geld da hört die Freundschaft auf" (~At money friendship ends). The core is: Money is not a friendship service, and many friendships broke over money. If they really want to pay back, they would want to sign an IOU or similar.
    – Trish
    Commented Mar 2, 2022 at 14:08
  • You simply want a loan agreement (Darlehensvertrag) - not very different from the contracts a bank uses. There are default rules in the law, if you don't write down anything but the amount of money and the time to pay it back. Are you in Germany too?
    – K-HB
    Commented Mar 2, 2022 at 14:49
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    @Trish or Shakespeare “Neither a borrower nor a lender be, for loan oft loses both itself and friend.”
    – Dale M ♦
    Commented Mar 2, 2022 at 22:53

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  1. Choice of jurisdiction: You’re pretty much free to choose your jurisdiction. You don’t have to contract under German law. The German state will intervene though if you’re doing criminal stuff.
  2. Legally, the best is of course to draft a written agreement. You’re completely free in the terms (unless it becomes immoral, § 138 BGB), but a loan, § 488 BGB (Darlehensvertrag), with a 0% interest rate (if it’s meant as a short-term aid) is standard.
  3. The next level is to collateralize your loan, specifically with a pledge, §§ 1204 ff. BGB, i. e. your friend gives you a valuable item which you may (and actually have to) sell for profit if he doesn’t return the loan. However, unlike contract law, in property law you are not completely free regarding the terms (numerus clausus of property law, Typenzwang des Sachenrechts). Here it becomes too difficult though for the layman, so I wouldn’t recommend that unless you know what you’re doing.
  4. Ultimately, I/we think it’s nice of you to consider helping out your friend, but as Nike Dattani already portrayed it can get really nasty if you intend to legally enforce such matters. Trish mentioned the saying: Friendship ends where business begins. I, too, suggest to refer your friend to a pawnshop, research (third-party) microloan opportunities, and help him without directly giving him cash, dine together and offer company (i. e. address the psychological dimension financial troubles entail).

PS: § 9 SGB Ⅰ: Germany is (to some degree) a welfare state. Maybe your friend is eligible for some kind of assistance. However, and probably typical of Germany, if you want to get money, you have to fill in forms.

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  • FWIW, a 0% interest rate with a large enough loan for a long enough time period could have tax implications for imputed interest accompanied by a gift back of the interest that is imputed to have been paid This doesn't change any of the analysis above about whether it is possible and legal conduct this kind of transaction.
    – ohwilleke
    Commented Mar 2, 2022 at 21:36
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    Also, FWIW, the written agreement (in the U.S.) would typically be called a promissory note or IOU, and the arrangement related to collateral would be called a "security agreement" in U.S. legal terminology. I don't know what the German translations of these terms would be.
    – ohwilleke
    Commented Mar 2, 2022 at 21:37
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    @ohwilleke Darlehensvertrag or Schuldschein (the latter being most akin to the promissory note/IOU)
    – Trish
    Commented Mar 2, 2022 at 22:46

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