The worst scenario might be if: 1) you lend in the form of cash + 2) you just say “pay me back soon!” You should transfer the money via bank account and also draft a personal loan agreement (aka promissory note).
I. Why via Bank Account?
Because you’ll need to prove you actually handed over the money. (In court, it is the lender who bears the burden of proof.) When transferring the money, you could also enter a short message such as “LoanToMike” to make it clear the money (being sent) is intended to be a loan.
II. Why a Personal Loan Agreement?
Because you’ll need to prove the money you handed over was a loan, not a gift or reimbursement. Entering a message such as the above is not really definitive proof the money (sent) was a loan. Definitive proof is a valid personal loan agreement. For what to include, see slide at the top.
III. Additional Comments
1. Have the borrower handwrite (not type) the document him/herself. Verify his/her identity, and try to retain a copy of his/her ID. You can also try to record the conversations between you and the borrower. (In Korea, it’s legal to secretly record a conversation to which one is a party.)
2. From a borrower’s perspective: ask for a receipt (영수증) upon any full/partial repayment. When drafting a new/updated promissory note, make sure the previous one is shredded. When making any partial repayment, specify (on the receipt) how the interest is to be handled.
3. Not all loans have to be paid back. Loans specifically made to finance illegal activity (or crime) need not be paid back. For example: 1) You knew full well the money was going to be spent on gambling (aka 도박자금), or 2) The money pimps initially “lend” to prostitutes (aka 선불금)…
4. Failure to pay back on time is not, in itself, a crime. It is a civil matter. It is a crime (i.e., fraud) only when the borrower had no intention (at all) of paying back. The courts look at the borrower’s overall financial situation + whether he/she had a job, etc. at the time money was lent.
5. You can ask the borrower’s spouse to pay back only if the money was used for marriage-related things/affairs. For example, the money was used to pay their rent, etc. (e.g., For drinking and having fun –> no.)
DID YOU KNOW? A loan agreement is called “금전(소비)대차 계약.”
I attended grades 4-7 in Manila. Once, a fellow student asked me if he could borrow 20 pesos. (At the time, 20 pesos could probably buy like a burger at the cafeteria.) I lent him the money, but he later refused to pay it back. Actually, he said he had no recollection of borrowing from me. What was interesting to me was that his response seemed genuine. (I still go back and forth on it, but I like to think he really forgot about it.) Looking back, it was a good lesson for me because I realized I had nothing to prove my claim. Below is the school (old campus) I attended.