Personal Finance Sep 03, 2015 09:23 AM EDT

How To Lend Money to Loved Ones and Friends Without Hurting Their Feelings and Your Pocket

By Staff Writer

Lending money to friends or family is a tough decision and should take many considerations.  Other people say you must not lend them because there is a bigger chance you will not be paid back while others say, you may if you must but should take caution.

If your friends or family members are borrowing money from you especially during an emergency, you can consider these things to make the transaction best for all concerned:

Lend only an amount that you can afford to lose.  This is like gambling - for a good cause.  You win some or you lose some.  If you are paid back, that is well and good.  If not, then no money is going back to your pocket.

Make a written agreement for both parties.  A verbal agreement is considered legally binding.  Even if you trust your friend or a loved one to abide by the agreed rules, you could land in hot water without a written agreement.  This is also one way to prevent misunderstandings in case a problem arises.

Set the schedule for repayment as well as the amount but expect flexibility.  For example, if both parties agreed that the payment should be $250 every month, do not expect that it will be the same amount that you will get every payment.  There are times when money is difficult and you will have to make some adjustments.  Even so, it is better that you get paid than getting nothing at all.

Try charging even a small interest rate.  This will help compensate your risk of lending your money.  This will let the borrower feel like you have received something in return for being generous and to help you get rid of tax problems.

Take note and monitor the balance.  Let the borrower knew too to make him aware of his outstanding balance.  This is very important because losing track of payments made or not made makes a belief that either one is being screwed up.  Payments made should be recorded on what date, amount, and what form - cash, check or money transfer.

Last, don't let money get in the way of your relationship with friends and families.  This must be very difficult and should be understood fully with both parties.  The borrower should understand is something is borrowed it should be given back especially money that is used for almost everything, from buying basic commodities to paying rent and bills and even loans too.

If you are not that comfortable lending your money, it is best to decline your friend or loved ones loan request.  Money is a serious force that can ruin friendships and family relationships.  Trust your instincts and gently decline if you feel uneasy about the loan thing.  Maybe you can help in some ways like buying groceries or giving a small cash gift to lend assistance.

If you really must lend your money to a loved one, use your head and not your heart because being too kind, forgiving or trusting can also lead to being taken advantage of even by someone who has the best intention.

Copyright ©

Real Time Analytics