No matter how faithfully your friend or relative promises to pay back the money, bear in mind that their expectations of the future might not bear fruit as they would want.
Lending money to a friend or family member carries risks. At one time or another, some of us may find ourselves considering extending a helping hand to a friend or relative who is in trouble financially.
Before you do this, there are a few things to bear in mind.
Lending money is a fast way to lose a friend. Lending money to some people is counter productive. They don’t learn anything because people are always bailing them out.
What purpose will the money be used for?
If the money is to be used in a business venture, ask your friend or relative what kind of plan they have for making a profit from the business. You will have a better idea of just how much planning they have been doing. You will also know how to better help them, if the plan is sound. Ask what the money will be used for.
What is the person’s financial history? Is the person borrowing money because they are genuinely going through hard times, or are they less careful with money than you would prefer? Someone who is very responsible in one area of life may not be as adept in another. Know where the person’s strengths and weaknesses are, so you know what to expect from them. Let the person know what your expectations are of them with respect to the loan.
Image by bschmove via Flickr
Is this money that you are considering lending, money you can afford to lose?
No matter how faithfully your friend or relative promises to pay back the money, bear in mind that their expectations of the future might not bear fruit as they would want. Sometimes this is through no fault of theirs. Things can just go wrong.
If the unexpected happens, can you afford to lose this money? Will you still be able to maintain a positive relationship with this person?
Don’t lend more than you can afford to lose.
When will the person pay back the loan?
Asking this is very important. For one, it reminds the relative or friend that you do expect the money to be repaid. Secondly, if the friend or relative has no immediate answer, it may be an indication that they hadn’t thought about it.
Offering investment advice may help sometimes. Investment advice will benefit people who like to learn how to make better decisions about their money. If someone doesn’t want to learn, investment advice will just fall on deaf ears.
There’s a reason why some people advise against lending money to friends; it can break the friendship. However, it is hard to see a friend in need and not assist. Make sure you do what is necessary to protect yourself if you decide to help your friend.
Follow me on Twitter to get updates on my latest articles: @ecorica
You may also like these articles:
Published in: Personal Finance