Do the Paperwork

You can purchase a simple loan document (called a promissory note) for $10 from legal services web site Nolo. Once you fill it out, all parties should sign it in front of a notary; it's just a nice bit of formality to have in your pocket in the event that anything goes wrong.

Spell out the specifics in the note: What interest rate you will receive, when the payments are due, how much is due with each payment, and what penalty will be paid for a late payment.