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How to lend money to family and friends

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Is it a good idea to lend money to family and friends?
Comment what we think
Check our finances first
get everything in writing
Set the debt payment plan to automatic payment
Consider whether to charge interest

  • They say that doing business with family and friends is never a good idea; this can trigger certain situations that could even end the relationship.
  • However, there are some strategies we can apply to ensure we get paid and maintain a good relationship.

All of us, at some point, have been forced to face the uncomfortable decision of lending money to family and friends . It is not a very comfortable moment, on many occasions the money is not returned and the relationship can be broken..

Is it a good idea to lend money to family and friends?

We already know the main reasons why it is ideal not to lend money to a friend or family member, especially if we are talking about a considerable sum. Earning money is something that requires effort and dedication; and it is very possible that it is not returned, we have difficulties to recover it and the relationship ends up breaking under so much pressure.

Likewise, if we plan to lend some money, before doing so we should consider a few things so that you and the borrower are on conversational terms..

  • The first thing we will say is that we are going to think about it.
  • We will verify how your finances are before making the loan.
  • The ideal would be to have everything in writing.
  • We might consider setting up an automatic payment debt payment plan.
  • It would be wise to consider the idea of ​​charging interest.
  • Possibly, the best thing would be to learn to say no next time.

Comment what we think

If they ask us for money, it is best not to say yes right away. We will have to tell our relative that we are going to think about it, that we have to verify our budget. It is not a good idea to lend money under pressure.

Nor should we be afraid to ask what the money is going to be used for. It is very likely that our relative or friend will tell us about this without even having to ask. Otherwise, we have every right to know what it will be used for..

Check our finances first

Obviously, we need to take a look at our finances and see how lending the money will affect us, especially if it will take a while for that relative or friend to pay it back. If we cannot afford to lend the money, it is best to refuse outright for obvious reasons.

get everything in writing

It is important to have everything in writing: loan date, amount, payment terms, expiration dates, etc. Sometimes putting everything in writing can complicate things, many people assume this is a lack of trust, but perhaps that can be seen as a red flag. If you plan to return it, why should you bother having everything in writing?

Set the debt payment plan to automatic payment

Maggie Germano, a women's financial advisor based in Syracuse, New York, strongly agrees that getting everything in writing is critical. She though she has an idea that might be quite positive.

Germano's father-in-law offered to pay off his son's student loans, this was so her husband wouldn't have to spend too much money on interest, but they did a very smart thing.

They agreed to a payment plan, Germano's husband set up automatic payments for his father through a bank account. Which means that not a single payment was missed and the repayment of the loan was completed in the established time. What's more, they never had a conversation about the loan, Germano said.

Consider whether to charge interest

We have every right in the world to charge interest when we make a loan. The amount will depend on each one. Generally, lenders apply 3%, some go up to 30%; if it's a friend or family member, it might be best to stay low.

Finally, the best advice we can give you is that; If we are thinking of lending money to a relative, we must see it more as a gift than a loan, we must be prepared not to recover it again.



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