Lending money to a friend or family is always a delicate topic: helping someone you care about is a natural gesture for you, but it can mess up your relationship as well as your finances.
The worst thing you can ever do is handing them your money and pray to be repaid. Be smart about it: even if you trust your friend, those 200$ will probably slip pass his mind, but not yours… If you are to help someone in need, you need to have a repayment schedule and terms in case of default. The easiest way is to use a promissory note template: you are now guaranteed to get your money back.
Here are additional tips to look for:
1 – Only lend what you can afford to lose
When it comes to money, you better trust the wisdom of poker players. And their favorite motto is: only gamble what you can afford to lose. Any loan is risky, so you must be sure not to put yourself into troubles for the sake of being nice. You must also consider that in some cases, you may want to forgive the debt to save the relationship, which is easier done if the amount is meaningless to you.
2 – Know how the money will be used
If someone is urging you to lend them money and sound desperate about it, think twice: does this person usually manage his money wisely, and is only facing a temporary problem? Or does she spend everything in branded shoes as soon as her salary hits her bank account? Be sure to perform your due diligence, and know why and how your money will be used. If the person gets defensive as you question him, it sounds fishy. Kindly decline the deal.
3 – Lending money requires terms agreement
You want to be sure everything is clear for both sides: repayment date, interest rate, and what happens in case of default. It will prevent future problems. It will also alleviate the stress on you, knowing you will be repaid on time, and to your debtor, who will not feel bad about using your money.
4 – Don’t lend money to strangers
While obvious for most people, this is the number one rule. The fact that you may be considered as an unlicensed money lender should be the least of your concern, as you’ll most likely experience a lot of troubles even before that. Some people cheat for a living, but many others will take advantage of an easy deal.
Lastly, it is important to know when to say NO, because being selfless will do more harm than good if you’re dealing with unscrupulous people.
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