1. Distance Yourself
2.Deal With Cash Only
3.Consider the Impact
4.Charge Interest
5.Get It in Writing
6.Only Lend What You Can Afford
7.Get Full Details
1.One of the biggest mistakes you can make when lending to friends and family is to micromanage that person’s spending after you’ve made the loan. Once you’ve agreed and inked the deal, the money that you lend is no longer in your control – obsessing over how it’s spent will only foster problems. Separate yourself from the money and focus on repayment, not on how it’s spent.
2.Never put yourself in a position where someone else’s actions could affect your ability to borrow or secure credit in the future. You can control cash, and lending it won’t directly affect your credit score. If a loved one asks for help, only deal with cash or politely decline.
3.When you lend money to a family member, you impact just about everyone else you’re related to. Allowing one family member to borrow and not another could drive a wedge into your relationships. Other family members might see favoritism or enabling, so seriously think about how going through with the loan will make others feel.
5.While a verbal agreement is considered legally binding, it still comes down to your word against someone else’s – and even if you trust your loved one to abide by the parameters you set, you could land in hot water without a written agreement.
6.Even the most well-meaning loved one might fall on hard times and default. Ask yourself whether you are okay with that. If not, don’t dole out the loan.
7.While you might be anxious about hurting a loved one’s feelings, you need to know where your cash is going to decide if it’s worthy of a loan. A bank would never blindly hand over funds without knowing what it’s being spent on, and neither should you.
2.Deal With Cash Only
3.Consider the Impact
4.Charge Interest
5.Get It in Writing
6.Only Lend What You Can Afford
7.Get Full Details
1.One of the biggest mistakes you can make when lending to friends and family is to micromanage that person’s spending after you’ve made the loan. Once you’ve agreed and inked the deal, the money that you lend is no longer in your control – obsessing over how it’s spent will only foster problems. Separate yourself from the money and focus on repayment, not on how it’s spent.
2.Never put yourself in a position where someone else’s actions could affect your ability to borrow or secure credit in the future. You can control cash, and lending it won’t directly affect your credit score. If a loved one asks for help, only deal with cash or politely decline.
3.When you lend money to a family member, you impact just about everyone else you’re related to. Allowing one family member to borrow and not another could drive a wedge into your relationships. Other family members might see favoritism or enabling, so seriously think about how going through with the loan will make others feel.
If you’re a parent considering loaning money to a child, it might even be a good idea to call a family meeting to discuss the terms openly. That way, none of your other children will be confused or hurt by the decision.
4.Charging interest to a family member or friend might seem unnecessary, but it’s the fairest way to protect yourself. Not only will a fair interest rate inspire your family member to pay you back in a timely manner, but it can also protect you from being charged gift taxes on the money you lend. As of 2012, 5.While a verbal agreement is considered legally binding, it still comes down to your word against someone else’s – and even if you trust your loved one to abide by the parameters you set, you could land in hot water without a written agreement.
6.Even the most well-meaning loved one might fall on hard times and default. Ask yourself whether you are okay with that. If not, don’t dole out the loan.
7.While you might be anxious about hurting a loved one’s feelings, you need to know where your cash is going to decide if it’s worthy of a loan. A bank would never blindly hand over funds without knowing what it’s being spent on, and neither should you.
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