The do’s and don’ts of lending money to friends and family

Lending money to loved ones can be risky business. On one hand it’s noble, caring, and a brilliant display of generosity that can strengthen family and friendship bonds. On the other hand, loans to friends and family can negatively affect relationships by driving the tension of financial burden between you and your loved ones. Love and money change everything, and when the two meet, the results can be disastrous. When considering lending to a friend or family member, make sure it is the right decision for you.

Get the details. What will this loan be paying for, how will it affect your borrower’s financial state, what will be the terms of repayment? Banks check their borrowers’ credit and intentions before lending money, and there’s no reason you shouldn’t have a sit-down with yours. Part of the reason friend and family loans are rarely paid back is that they are not discussed enough beforehand. This is your money. You have a right to know where it’s going, what it will do, and how it will be repaid.

Don’t lend money you can’t afford to lose. Helping someone climb out of their financial hole by digging one of your own is one of the worst things you can do. Repayment will most likely be slow, so don’t plan on getting your money back right away. This is a difficult fact to face; you may never see this money again. Family loans are often delayed or defaulted in repayment because they’re not as severe in obligation as bank loans. It’s not easy to say no to loved ones, but if you can’t afford to lose this loan forever then don’t lend it at all.

Lend out cash only. Your personal savings are something you can control, and lending cash will never have a negative impact on your credit. You should never open a credit card in your name for someone else’s use, and you should think very carefully before cosigning on any loans. These are legally binding arrangements that you will have put your name on. If your loved one defaults, the burden will be set on your shoulders. You will be legally obligated to repay this debt. Quick cash loans keep things simple, and are the best way to go for helping out friends and family.

Don’t be afraid to let go. After shelling out for a loan, many people feel the need to track the borrower’s spending. Don’t micromanage. Once the terms have been established and the money leaves your hands, it is no longer yours. The only thing to concern yourself with now is the schedule of repayment, which should have been agreed upon at the beginning.

It’s important to be smart with your finances. Lending money to your friends and family may not be the smartest way to go. The very act of lending and borrowing large amounts of money changes the nature of relationships. It can cause tension between you and your loved ones, and has the potential to ruin relationships. When considering shelling out for a personal loan, be sure to consider everything.


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