The following is a post on behalf of Choice Loans
When people are in need of some money, they usually are going to ask a family member for help. How will you respond in the event that Uncle Frank asks to borrow some cash from you during the next family get together? Below are a few common questions you should ask yourself prior to providing a personal loan to a relative.
- Are you in a position financially to be lending money? Bottom line, do not lend money that you yourself don’t have!
- What is the loan going to be used for? Are you paying for someone’s vacation? Or are you helping them feed their family?
- Do you think you are going to be repaid? A good idea would be to review this relative’s history with borrowing from the family. It probably is not a good idea to lend money to someone that has borrowed in the past and not paid back their loan.
- Will giving a personal loan cause a rift within your family? For example, if you have a relative that suffers from any type of substance abuse, you will likely be labeled as an enabler by other family members.
- What will the cost to you be for lending money? For example, suppose your nest egg yields 8% annually. Lending $10,000 for five years is going to cost you more than $4,000.
- Does your relative have any other types of borrowing alternatives? Family is comfortable asking to borrow from one another because interest is probably not being charged. That comfort zone needs to be taken out of the relationship.
Suggest that they check out the various types of personal loans that are available online. There are many companies that offer fast cash loans for many different needs and credit types.
- Are you going to be able to survive not having the money you are loaning out? Even if you are borrowing from your savings, do you still have enough funds to satisfy an unforeseen emergency of your own that may arise?
Lending money to family can be a difficult decision regardless of who it is and how much you trust them. If you can, don’t be a bank for anyone. Even if you are paid back the first time, it is likely that they are going to ask to borrow money again and again. It is very possible that they will never pay you back and that could ruin your relationship. But if you do decide to help someone out in a time of need, make sure you create some type of promissory note between you and the borrower. You want to legally protect yourself.
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{ 2 comments… read them below or add one }
I had a few bad situations with loaning money to family (they didn’t pay back) so I’ve found it’s easier just not to go that route because it can get between your relationship with the family member. Just my 2 cents.
Agree with Ryan. I’d toss them a copy of The Total Money Makeover and tell them to learn to deal with their money properly.
If I thought they were doing a good thing, and I really could afford it, I might just gift it to them.