Family member loans can put your finances and cherished relationships in a tight spot if you do not take proper precautions.
Just because the person asking for a loan shares a close emotional bond with you does not mean that you should cut corners.
Lend money the right way by following this checklist.
Check if you have enough money
You may feel pressured to say yes straight away to a family member who needs some help with their finances, which is why you should check your account before you answer. Respond positively so that your relationship is not damaged but make it clear you need to consult your accountant and assess whether the loan is feasible for you.
Giving your answer
If you feel that the family member asking for the loan is unlikely to pay it back due to personality traits or poor credit, you may have to say no. In the event you do not give them the money, sit down with your family member and explain why this is not financially viable for you and offer your help in other ways.
Put it down in writing
Putting the agreement in writing will avoid any miscommunication and give you greater certainty in the repayment process. You should include:
- The loan amount
- The due date for the lump sum or a repayment schedule
- Method of repayment (cash, direct credit, bank cheque)
- Any interest terms
- Security for the lender