Loaning Money to Family and Friends

Perhaps the single quickest method for destroying a relationship is to loan money to family and friends. For some reason, when money enters the picture people have a tendency to stop thinking rationally, and this is especially true when you bring family and friends into the picture. If you are dead set on loaning, or even asking those close to you for a loan, then make sure you follow a few guidelines. While it is no guarantee, following these guidelines will definitely help improve your chances of still having a relationship with the person who loaned you the money when it is all said and done.

• Set up an interest rate. If you are interested in loaning money to a friend or family member, then you may want to consider applying interest to your loan. Do not charge too much, but rather make it something that is fairly competitive with what you can find at your local banks. This will help keep the idea firmly in the mind of the person you are loaning the money to that this is a loan, not a gift.
• Have a written agreement if possible. To really make this as much like a "real" loan as you possibly can, you should also create a written agreement. This will allow both you, and the person you are lending the money to, have something to reference that clearly states everything that is being agreed upon. This is vitally important so that people do not get confused, or forget something, and to provide a reference that both people can easily accept in the event of a dispute.
• Create a fair payment plan. For some reason, when people lend money to friends or family everyone expects to have that money repaid in one lump sum. Why is that? Again, you increase your chances of being repaid if you actually create a fair payment plan. Be as realistic as possible when setting this up. It may be unpleasant, but actually sit down with the person who will be borrowing the money from you, and work out a payment plan that is mutually beneficial to the both of you.
• Only loan out what you can afford. Loaning money to family and friends is always a gamble, and something that should never be done lightly. A very wise woman once said that you never loan money to family and friends, you give them a gift instead. What this means is that you should never, privately, expect to see the money you loaned again. As such, you should never give out more than you can afford to lose. This is the key to maintaining a good relationship with those family and friends that you loan money to.