Lending Money to Friends? 5 Smart Tips to Keep in Mind
Loaning cash to friends may be just about the best way to lose both the money and their friendship. Unfortunately, at some point, a friend may approach you for a loan. Lending money to friends may not jeopardize your relationship with them, if you follow these smart tips.
Tip #1: Don’t Say Yes When You Mean No! If you’re going down a guilt-trip for being the richer of the two in a relationship, the situation is further worsened by a desperate need for funds. Questioning your hesitation may be the worst thing you could do. If you say yes, you must mean it. So if you are not in a position to lend, tell you friend frankly about it in a friendly way and make her understand your situation. It is easier for your wallet (and your conscience!). But never opt for a loan if it puts your financial situation at a big risk.
Tip #2: Deal With Cash, if Possible If your friend asks you to become a co-signor or use your credit card, it could be a dangerous risk for your budget and your friendship alike. Being a co-signor or guarantor of a defaulted loan can impact your credit score, or even drag you to legal consequences. Deal in cash or check only. Even in the worst case scenario of an unpaid loan, at least your credit ratings will remain safe.
Tip#3: Get All The Details This helps you to take a decision and consider the course of action you would take if the loved one does not make payments in time or at all.
Tip#4: Charge Interest Charging interest to friends might seem a bit much, but a fair rate of interest is the best way of ensuring the money is returned. Charge lower than the running market rate, but don’t miss out on what is in your best interests!
Tip#5: Get The Terms In Writing The spoken word is like an arrow. Once shot, it can never be retrieved. Unfortunately, it can be easily forgotten especially in matters of loan repayment. With memories fading and priorities shifting, don’t let money come in the way of friendship. Have the loan amount and conditions in writing. A simple personal loan agreement can be even drafted without hiring an attorney. Always settle the date for repayment and ensure you and your gal pal are on the same page when it comes to repayment. Should legal actions be needed at a later date, written contracts have legal standing in court.
Bonus Tip: Don’t Micromanage the Loan One of the biggest issues you can face when lending to a friend is becoming a control freak and micromanaging their spending, once the loan has been given. Separate your friendship from the loan, and focus on repayment, not on your friend’s spending habits.
Final Word Lending to friends is possible, if not necessarily advisable. These smart tips can help you to make intelligent lending decisions, keeping your best interests in mind, besides being a pal your friend can really bank on.