If you are planning on lending a significant amount of money to a friend or family member, it is very important that you make a point of keeping a few things in mind. There are a lot of mistakes that people make when lending money to loved ones, and you will want to avoid every single one of them.
These tips for personal lending will help you to avoid a potential nightmare of a situation.
Only give out Cash
One of the most important things to remember when it comes to lending money to friends and family is to only give them cash. You should never agree to let anyone you know open a new credit card in your name. It’s also a bad idea to co-sign loans for people you know, because the last thing you want is to be stuck with hundreds or even thousands of dollars in debt. You will have complete control when it comes to giving out cash, and doing so cannot affect your credit in a negative way.
Don’t give more than you can afford
You will want to make a point of determining whether or not you can really afford to lend a family member or friend money before actually doing it. While you may be tempted to help out someone you are close to when they need it, you don’t want to do so at your own peril.
Get all the details
When you are going about lending someone money, you will want to make a point of getting as much information from them as possible. Make sure that you find out what your loved one needs the money for and when they think they’ll be able to pay back the loan. The more of this information you get, the easier it will be to make a final decision.
Consider charging Interest
If you want to ensure that you get your money back, you might want to consider charging the person you loan money to interest. You don’t have to charge them a ridiculously high rate, but doing this will improve the chances of getting back the money you lend.
Make it official
Finally, you will need to put your deal with the person you are lending money to in writing. A verbal agreement is technically considered legally binding, but you will not want to rely on just that in court if it comes down to it. Make sure that you write out a detailed loan agreement and have both parties put their signature on it. This might seem unnecessary, but it is for your own protection.
The Bottom Line
It is crucial that you take all of the above mentioned things into consideration when lending money to someone you know. Whether it is a close family member or a friend, you will need to do everything you can to protect yourself. There is nothing wrong with lending money to someone you care about who is in need, but you should still approach it in a careful and thoughtful manner.
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