Workplace Culture

3 Rules for Lending Money to Friends and Family

personal lending 1

personal lending 1

There are many moments in life where we find ourselves short and in need of cash. But sometimes we find ourselves giving favors and lending money to family or friends. “Don’t do it!” is what you would usually hear from financial advisers. But if you have the ability to help then it would really be difficult to say no especially to someone dear to you. When you find yourself in that situation, follow these rules for lending money to prevent any trouble:

personal lending

Make it official.

What usually happens in personal loans is that it remains unpaid for long periods of time. In most cases, either the borrower forgets to pay or the lender shies out to ask for the payment. As the lender, you have to protect yourself.

Just to be safe, you can ask the borrower to sign a promissory note containing the terms of the loan. This will serve many purposes. For one, it will clarify that he is borrowing money and you are not giving a gift. If the borrower doesn’t pay you back, you will always have the option of taking the matters to court to collect.

personal lending 2

Have a plan.

As the lender, you should set up a repayment plan that will match the terms of the loan to the circumstances of the borrower. For example, you can put in a grace period to let the borrower get on a better ground and then make the payment schedule to match the pay period. By doing this, you make the personal loan more likely to be paid. Don’t forget to consider contingencies like what you will do if the borrower is having trouble making payments. You can either modify the terms of the loan or charge a late fee. More importantly, if it will bring financial hardships for you if they can’t make the payments you’re better off saying no.

personal lending 3

Involve someone from both ends.

The borrower and the lender must always have someone involve to act as a witness. If both parties have spouses or partners, they should be on board and should agree with the terms of the said personal loan. This is the most important among the rules for lending money to avoid burning bridges and long term hard feelings for everyone involved.

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