Loaning cash to family and friends is nothing out of the ordinary. 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.
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.
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
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.
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. Get the individual to sign a personal loan contract.
Make sure you do what is necessary to protect yourself if you decide to
help your friend.