Lending a loved one (friend or family) a significant amount of money can put you in a tight situation. Simply lending out the money can cost you the relationship you had with that person, among other things. This is one of the reasons you need to proceed with caution when a friend or a loved one approaches you for some money. If possible, encourage them to seek financing from peer-to-peer lenders or even take a traditional loan. Chances are he/she is too deep into debt and might not qualify for a loan, they could check their payday loan eligibility before coming to you. You need to be aware of any debt they have before lending them some of your hard-earned cash. Outlined below are a few tips on how to lend friends and family money without putting your relationship with them at risk.
- Learn To Lend Hard Cash Only
Dealing with cash and offering only to give what you have in cold hard cash can save you from frustration and disappointments in the future. Do not be wooed into a scheme to co-sign a loan for anyone, or even open a credit card in your name for them to use. Decline (nicely) any plan that could affect your credit score and ability to borrow in the future.
- Lend What You Can Afford
Every wise gambler knows he/she should never bet on more than they can afford to lose. You too could avoid getting into trouble by following this simple rule. One of the risks of lending a family member or friend money is that they might never pay you back. It is also for this reason why you should only give what you can afford to lose. This way, you can choose to forgive the debt but still maintain the friendship/relationship you had. It’s worth noting that even the most trustworthy and best of friends can have a hard time repaying debt and default. Only give what you can afford.
- Think About The Impact It Might Have On Other Family Members
Choosing to lend a family member some money, and not the other, can cause unwanted tension and even affect how you relate with them. While you might be helping/lending with a good heart, the simple act might be interpreted otherwise by the other members of the family. Some will see it as favoritism, which is why it would be advisable to think it through before going ahead with the plan. If looking to loan one of your children some money, call the other siblings and have a sit-down with them. Discussing this with them, as well as the terms will provide an even ground to argue out if need be. They will also know what transpired should he/she choose not to repay.
- Get To Know The Reason Behind The Loan
Considering the risks, they might as well tell you why they need the money, and what they will use it for. Although it might seem too harsh on a family member or friend, they should be willing to give you the full details if they want your help. Banks too will request to know the purpose of a loan before approving it.
If for one reason or another, he/she gets offended, this is your cue to abort everything. Should they choose to tell you the details, ask for some time to think about it. Use the time to dig into the details to see if it's legit or not. Investigating the idea before lending your money is one of the best ways to avoid being scammed.
Charge An Interest For The Amount Borrowed
While it might not seem necessary to charge interest to a loved one, this is the only way you can protect yourself from unforeseen circumstances. Just be sure to charge a fair interest rate to make it easier for them to repay. Failure to charge an interest rate could see you being charged gift taxes for the money. Be sure the borrower knows this before getting it into writing, and that he/she understands it fully. You could also involve an accountant if dealing with larger sums of money.