Q. Why do I need to document a loan to a family member or close friend?
A. In order to be classified as a secured creditor you must document the loan and get some collateral from the borrower, such as a mortgage on their home or an encumbrance on a vehicle or other asset. Secured debts are not automatically wiped out if the borrower declares bankruptcy. Secured debts take priority over unsecured debts, and you will have the legal right to foreclose or repossess and sell the items given as collateral if the borrower fails to honour its payment obligations.
Q. What rate of interest can I charge?
A. If there is no provincial law in your area which governs how interest will be charged on a loan or mortgage, the Canada Interest Act applies. If you have not stated whether the interest rate is simple or compound interest, a court would probably rule that only simple interest will be charged.