Money can’t buy a friendship, but it can certainly kill one. When it comes to lending money to people you love, you need to be careful. And, in many cases, it shouldn’t ever be done.
However, if you love helping your friends and family members, there are four things you can do to make sure money doesn’t come between you.
Find The Courage To Just Say No
Avoid the headaches and future problems. It’s best to say no to loaning money to family or friends. They may get upset, cry, throw a fit or whatever, but remember: it’s your money. If the person is willing to break things off between the two of you, maybe they weren’t worth it in the end.
Realize You Might Not Be Paid Back
When a family member comes to you for a loan, chances are they were probably turned down for a bank loan because of bad credit or low income.
If you’d like to loan them the money, you need to figure out what’s more important – the relationship or the money. If the relationship is considered more important, then it may be best to just consider the money a gift. Consider yourself lucky if you get paid back.
Always Draft Up A Contract
If you are dead set on making this a loan, you must ensure that you and the borrower are on the same page. The way you do that is by creating a contract. While your friend/family member will want to do a handshake or oral promise to pay the loan back, the best thing you can do to protect yourself is to draft a legal contract.
Come up with loan terms you both agree to. If it’s a family member, consider not charging interest. But establish clear rules for late payments. Both of you need to sign this agreement in front of a notary, so there are no misunderstandings and it’s enforceable in court.
They Don’t Owe You Nothing But The Money Back
When you loan money to somebody, you may feel as if they owe you more than just the cash. After all, you did them a big favor and got them out of a bind. Not true! You may want them to assist you on an endless amount of projects, but this is not the way it should be.
When you sign a contract with a person, the only thing they owe you is the money you loaned them and any possible interest you agreed upon. You shouldn’t expect them to do your bidding just because they loaned you money. While you should be firm in asking for the money back, you don’t want to hang it over their heads and force them into doing extra favors for you.
While it may seem like lending money to a family member is a nice idea, it can lead to problems in the future. So to avoid all the headaches, it’s best to either give them the money as a gift or not give them any at all.