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NewsTop 10 things to consider if you’re asked to lend money to family or friends
Top 10 things to consider if you’re asked to lend money to family or friends

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?

Originally posted on .

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Gertraud
Gertraud from ACT commented:

I have no issues with lending money to my children. They are responsible adults and they know that not only are loans to be repaid, but they are up for interest at the rate I pay for the mortgages on my investment properties as I draw the funds from an offset account. I may not always draw up a loan agreement, but the agreement is evidenced in an exchange of emails between us. They have never let me down. 

Someone
Someone from VIC commented:

I have lend money to I friend with a agreement that the money be returned with in two weeks.It took her 8 monts .After 8monts she made fil giltu that I didn't waited long enough. 

Christine
Christine from QLD commented:

Many years ago leant $1500 to a family member - drew up a written agreement for repayment etc. I gave them 12 months before they needed to make first payment, at which time all I got was the middle finger salute. So I paid to get a solicitors letter written up and served. I soon got my money back. I took this action to teach them responsibility and that if they wanted to be financially stable, to WORK as hard as I had. Yes, this caused a great deal of family discourse, but I do not regret it. 

Someone
Someone from SA commented:

My Wife and I often lend money to our two daughters. Guide lines are always set and agreed to before hand regarding time, repayments and amount. They have never let us down and we have become known [within the family] as the bank of mum and dad. Len 

Someone
Someone from VIC commented:

I lent money to a friend - $3000. I watched her do up her garden - have her nails done weekly and a variety of other things I thought should come second to repaying. I never mentioned it but she stopped seeing me (we did live in different towns - but even when visiting home would not drop by). She stopped chatting on social media too. Basically stopped our friendship. I then asked her directly if she could please repay it. It took 5 more months and a number of calls and emails before I finally had it repaid. And I hadn't asked for interest as it was only ever meant to be a short-term loan. If ever having to do it again - I would draw a contract and be firm about repayments too. My Dad always said "If you can't afford to give it to the person, don't ever lend it." That way if it is repaid it's a bonus - if not - well you could afford it anyway... Once burnt - twice shy... Sigh Andy 

Nick
Nick from SA commented:

Hi Andy, it's horrible when that happens. The person you lend money to disappears all of a sudden. I agree with your dad, only lend what you can afford to lose... thanks for sharing. Kayley 

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