Do’s and Don’ts of Lending to Friends and Family – One of the most common options when it comes to borrowing is borrowing from family members or close friends. Although sometimes it may be difficult to ask a family member for personal loan, but other times, it may be the best option for you. But you should do the right process so both the borrowers and lenders don’t result in undesirable situations.
For this reason, avoid lending money without stating clear boundaries. Just because it is your loved one doesn’t mean the details should be left vague. Do not avoid having an honest conversation about the repayment, and definitely avoid relying on verbal agreements. It’s also important not to lend more than you can comfortably live without; because if the money isn’t returned, it shouldn’t ruin your relationship or your finances.
Friends And Family Loans:
Do’s and Don’ts of Lending to Friends and Family;Loans from family and friends can be the best options for some people. According to statistics, getting financial support from family and friends through loans. But in this case, the loan must be properly handled to avoid any conflict at the end.
You may decide to load a family member or your friend an amount because getting a loan from other source like the bank may be a difficult process especially if the person does not have a good credit score.
Another situation is when you have to co-sign a loan application with a family member or a close friend, you have to be extremely careful because if the other person fails to repay the loan amount, you have to pay the money.
Alternatively, when a family member or friend is faced with a dire financial challenge, and can’t wait for the application or approval process from the bank or lender. Below are some do’s and don’ts of lending to friends and family.
Do’s and Don’ts of Lending to Friends and Family
To begin with, make sure everything is clearly discussed upfront. Talk openly about the loan amount, repayment terms, and any interest if needed. Even though it’s a personal agreement, treating it like a formal one shows respect and builds trust. It’s also smart to put everything in writing. This way, both sides know what to expect, and it helps prevent misunderstandings later on. If you have to lend your close people your money, consider the following does below.
The Do’s for Lending to Family and Friends
1. Only Lend to the People to Trust
It is only wise to lend your money to the people you trust. Only lend to the people you know and can couch for their being responsible. If the person you want to borrow your money is careless with money or have a serious addiction problem like drug abuse, you will want to take your time to think harder if you should lend them your money.
2. Only Give Loan Amounts You Can Afford
No matter how much concerned you are or want to help out, you must never go beyond your limit. Always put your own financial situations in check, if you are not financially buoyant to give pout a certain amount, kindly turn down the loan request. Also always lend amount that you can part with if eventually the loan is not repaid.
3. Put The Loan Term in Writing
To avoid conflicts or manipulations in the future, it is highly advisable that you put the loan terms in writing. If it is a significant amount, you should ensure to put it under writing, you can also involve your lawyer. In your writing, ensure you specify the loan amount, interest rate if there is any and the repayment schedule. One thing you want to do is to ensure the writing is very detailed, explainable and specific as you can. The lender and the borrow should come to terms with the loan terms.
The Don’ts for Lending to Friends and Family
Lending money to someone close can feel like the right thing to do, especially when they’re in a tight spot. But it’s important to be cautious. Mixing money with personal relationships can lead to misunderstandings or even damaged trust if things don’t go well. Below are some of the important don’ts of not lending a family member.
1. Don’t be Emotional About Your Decision
Try not to make your emotions your driving force in your decision making. Ensure you have counted the cost, and you are sure you are in a good financial condition to borrow anybody money.
2. Don’t Lend More than you can Afford
If you don’t have to lend a family member or friend, do your best to explain your financial situation to them. But don’t accrue debt or touch your emergency fund to lend anyone.
3. Don’t Lend Someone your Credit
Never use your credit to loan someone because the impact on your credit score will be yours alone to bear if the person doesn’t pay back in time. You may end up developing a bad or fair credit score. You can consider co-signing a loan application with the other person, but you still have to be able to face the consequence if the other person can’t pay the loan.
Final Thoughts
Lending to your family or friends is a great thing to do. It is even better if the person you are lending is responsible with money. However, if you must lend a family member or a friend, you need to consider the factors involved, and the consequence you might face if the loan amount is not repaid.
