Write a clear loan agreement when lending money; think carefully before acting as a guarantor

The loan agreement must include all key details: who the lender and borrower are, the amount, interest rate, term, and repayment method, plus both signatures. Always use bank transfers instead of cash — this makes it much easier to pursue legal action if needed. Before agreeing to be a guarantor, check whether the contract mentions “joint and several liability.” Under a standard guarantee, creditors must first sue the borrower and exhaust all collection efforts before they can demand repayment from you. But if you sign a joint and several liability guarantee, creditors can demand payment from you directly.

Cost

No cost at all. Simply write down the lender, borrower, amount, interest rate, term, and repayment method on a piece of paper, then have both parties sign it. Transfer the money via bank transfer to leave a clear record — never hand over cash.

Benefit

Loan contracts must be in writing, with standard clauses covering the type of loan, currency, intended use, amount, interest rate, term, and repayment method. This clarity is essential for any future legal action. If a guarantee contract does not explicitly state the type of guarantee or leaves details ambiguous, it is treated as a standard guarantee. Under such terms, creditors must first pursue legal action against the borrower and attempt to enforce repayment before they can turn to you. However, if you agree to a joint and several liability guarantee, you lose this protection — creditors can demand payment from you immediately. (Nationwide)

Notes

Any interest charged above four times the LPR is not legally enforceable by courts; see Section 7 for details. It is common practice to include both parties’ ID numbers and the phrase “loan agreement” on the document. The presence or absence of “joint and several liability” in the guarantee contract determines whether you are secondary to the borrower in repayment obligations or treated on equal footing with them — read the contract carefully before signing. In some cases, a party may be asked to act as a guarantor but ends up signing a loan contract instead; see Article 45 for such scenarios, where the individual is legally classified as the borrower rather than a guarantor.

Sources · 1

1. 全国人大 (2020). 民法典（第六百六十八、六百八十一、六百八十六、六百八十七条）. spp.gov.cn/spp/fl/202006/t20200602_463888.shtml