Everybody faces unexpected expenses from time to time. Some people have an emergency fund in place to quickly handle the situation, and others turn to credit. There are some occasions, however, where a person has nowhere to turn. Lacking an emergency fund and having no credit available, they may have no choice but to turn to friends or family for help.
The person needing the funds is certainly in an awkward position, as they have to admit that they are having problems and need help. However the family member or friend being asked to lend money is also in a tough spot. Sometimes the money borrowed is paid back in full without any issues. But in those instances where money is not paid back in a timely manner, or not paid back at all, the relationship as well as the lender’s finances can be permanently damaged.
Whenever lending money to a close friend or family member, the following points should be kept in mind:
Leave No Doubt, It’s A Loan
I’ve watched enough courtroom television programs to know that sometimes people’s memories get fuzzy as to whether money given to them was a loan or a gift. Ensuring both parties are on the same page could be a piece of paper that you both sign stating that it’s a loan, an email exchange, or even a series of text messages. This will ensure that there is factual information that clearly states the money was a loan to clear up a disagreement between the parties, or to be used as evidence should the situation escalate to small claims court.
Don’t Leave Yourself In A Bad Financial State
It’s nice to be able to help a family member in need, but do not loan money you don’t have. If giving the money to a family member puts yourself in a financial bind, then you must politely decline.
Don’t Be Afraid To Say No
You may not have the money to lend right now. Or, you may not feel comfortable lending the money to this particular person. Whether you don’t want to risk damaging the relationship, or you know this person has borrowed money before and failed to pay it back you should never feel obligated to borrow money to someone. It’s OK to say, â€œNo.â€
Setup A Repayment Plan
It’s extremely important to discuss how the money will be repaid as soon as possible. Not only will it help reinforce that the money was given as a loan, but will set the expectation of when the money will start flowing back
Have Frequent Contact
People tend to feel they can ignore a situation if they are not reminded of it. While it’s not necessary to call up your loved one on a daily basis to remind them of the money you’re owed, sending a quick text or email as the first payment date approaches is a good idea.
Help With Money Management
The request for a loan could simply be a short term need for cash, but it could also be a sign of overall financial management issues. Along with the loan offer to help the family member with budgeting techniques to improve their personal finance skills. By doing so you could increase the chances of getting your money back and help them get their finances back on track for the long run.
Don’t Feel Guilty Asking For It Back
Remember who’s owed the money. Don’t let yourself ever be guilt tripped into feeling bad for asking for it back. You worked hard to earn the money and you deserve to know when it’s going to be returned to you.
Don’t Expect To Get It Back
Someone that is desperate enough to reveal their financial position and ask a family member for a loan may be in survival mode, and simply thinking about how to solve a short term problem without realizing the long term effects. They may not have the financial resources to ever pay you back. It would be great if by taking all of the above steps that the money could be repaid, but the loan should be made with the expectation that you’re never getting it back. By setting this expectation, your relationship with your family member will be able to stay intact if that is the ultimate outcome.
Borrowing money to friends or family can be tricky. It’s hard to see our loved ones go through a hard time, and we want to help them get back on their feet. By following these tips, you can prevent yourself from harming your relationship with your loved one, or your finances.
How about you, Clever Friends, have you ever borrowed money to a close friend or family member? How did it work out?
Brought to you courtesy of Brock
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