How to lend money to loved ones.
They say money and friends don’t mix, and there’s certainly some truth to that. One day you might find yourself in a situation where you are pondering lending money to a loved one. If that happens, consider the following before going through with the transaction.
Think First
If a loved one asks for money, tell them you need time to think about it. You don’t want to lend money under pressure. Taking time to think, allows you to consider all possible situations and make a more informed decision.
Budget Matters
During this “thinking time,” one of the first things you should do is look at your budget.
- Can you afford to lend this money?
- What is the likelihood of repayment?
- What if they never pay you back?
Consider all possible outcomes to lending the cash and how those will impact your budget.
No is an Option
Don’t be afraid to say no to your loved one. If lending the money will put you in financial hardship, it’s just not worth it. The loved one might be put off at first, but simply explain why you can’t lend them the money. If they are truly a person who is close to you, they’ll understand.
Document Things
If you decide to go through with the loan, get everything in writing. The document should include the date and amount of the loan, payment dates, and any interest rate. Yes, getting your loan in writing might be a bit awkward. But this brief awkwardness will be worth it in the long run. If the details of the transaction are clearly documented, there’s little chance for things to go awry.