Top 10 things to consider if you’re asked to lend money to family or friends
This week’s money saving tip works in reverse, saving you money by not lending it!
When I was in my twenties, I was earning good money and still living at home without any financial responsibilities. I’m guessing this is why a relative asked me to lend him money to finish building a house. When I asked now much he wanted, his reply was “as much as you can spare as my bank is pressuring me”. I leant him $1000 which was a lot for me at the time.
Unbeknown to me he had also asked my mother for money knowing she had recently been widowed and come into cash from a life policy. She lent him $10,000. He promised to repay us both within a year.
After 3 years I tracked him down interstate and paid him a visit to ask for the money back for my mum who was by now needing the money. He said he didn’t have any and couldn’t repay the loan.
What have I learnt from this? I will still lend money to people I feel genuinely need it in my close circle but not more than I am prepared to never see again. In my case, it’s $500.
Chances are at some stage in life you will be asked to lend money to someone or you will need to borrow…..so….thanks to moneycrashers.com...here's the...
Top 10 things to consider if you’re asked to lend money to family or friends
1. Timeline
If you must lend money to a family member or friend, provide them with a timeline and a schedule for repaying the loan. The timeline provides a final deadline for total repayment of the loan and the schedule provides them with guidelines for making monthly payments.
2. Loans Are Not a Priority
Talk with your friend or family member and let him or her know that repaying this loan needs to become a priority. Set a deadline for repayment to avoid any misunderstandings.
3. It’s Difficult to Ask for the Money Back
If you have already lent money to a friend or family member and struggle with asking for the money, take the time to talk to the borrower to resolve the situation. Offer gentle reminders about the loan instead of asking direct questions. This made the discussions easier and less threatening.
4. It Can Make Family Gatherings Awkward
You and the other party came to a private agreement about the loan. Neither party should feel uncomfortable, but if family gatherings seem awkward, keep things lighthearted and steer conversations away from money.
5. The Borrower Becomes a Servant to the Lender
As a lender, I didn’t think of my borrower as a servant to me, and I certainly didn’t want my borrower to feel that way. If you think the borrower feels subjugated, try to help ease his or her discomfort.
6. The Borrower May Ask for More
Don’t become the go-to lender in your circle of family and friends. You should never be in a state of constant lending.
7. You Enable Instead of Help Your Friend or Family Member
Put your friends or family members in a position that improves their financial situation as well as their understanding of money management in order to truly help them.
8. These Types of Loans Don’t Earn Interest
Charging your friends or family members interest on loans might seem awkward, but it isn’t unreasonable. Obviously, the interest rate would be much lower than the rates offered by local banks or credit card companies.
9. You Might Need the Money
If you have any hint that you may lose your job, or that any sort of personal financial downswing is on the horizon, don’t lend money to family members or friends. Tell them honestly that you have a tenuous financial situation, and can’t spare the money.
10. You Could Lose Your Money and Relationship
The risk of damaging your relationship should be part of the initial discussion you have about borrowing or lending money.
Final Word
Even though you want to be a good person, and you want your friend or family member to love you, don’t lend him or her money if you can help it. Gently refuse the loan, and determine the best way to help your loved ones, instead of enabling them.
Sometimes loving someone involves doing something that they do not want, and they may be disappointed or mad. But if you have their best interests in mind, you can rest easier knowing you won’t jeopardize your relationship. If you can afford to loan money to a family member or friend, have an open and honest conversation to discuss any potential problems with the loan. Most of the time, issues related to these types of personal loans can be quickly resolved with a frank discussion.
Have you lent money to friends or family members? What was the experience like? Would you do it again?
