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Family and Friend Money Lending Tips | Lessons That 2012 Taught Me.

If you’re in a bit of financial hassle, sometimes it might seem like your only option is an emergency loan from family and friends; sometimes this might work the other way and you could be the one being asked to bail out a family member in their moment of need.

Your first inclination will probably be to help out but many people have learnt the hard way that nothing can sour a relationship like a financial debt, and if they can’t afford to repay the loan you could end up losing more than just your money.

If you’re faced with friends or family asking for money, there are a few things you should consider.

Can I Afford It?

Before you consider loaning anyone money, you’ll need to consider if doing so will leave you in a bind.

The first thing you should always consider in terms of money is yourself; it makes no sense to put yourself in financial hardship just to bail out a friend or family member.

How much money will you have left on hand? Will you be able to cover any emergency expenses that might arise? How will this affect any savings goals you are working toward?

Can They Pay You Back?

If you can afford it, can they?

Here is where you weigh up the financial risks of giving them the money; can they afford to pay you back? Do you trust them to pay you back?

If they don’t have a solid cash flow and they’re already struggling, will this help them climb out of the hole or will you simply be worsening their problems and throwing away your own cash in the process?

Family and Friend Money Lending Tips | Lessons That 2012 Taught Me.Only Deal with Cash

If anyone asks you to co-sign for a loan, act as a guarantor or open a credit card in your name for them, walk away.

This should be your first ground rule for any lending between family and friends. Taking any official measure from the bank may seem like an attractive option to preserve your finances and help out your friend, but if they fail to repay it could affect your credit scores and affect your ability to get finance further down the line.

Why Do They Need It?

Why does your friends/family need the money?

If the money is needed to feed children or fix a faulty boiler over Christmas, you might feel a little better about lending them money then if they’re begging for a hand-out to fund a summer holiday to Europe.

If someone is reluctant to tell you what they need the money for, you should turn them down; it’s your money and you should have the right to know where it’s going.

Discuss Other Options

If you feel uneasy about the loan after the below options, why don’t you suggest some alternate options?

A short-term or “payday” loan could be a great opportunity if they’ve found themselves in a short-term financial crisis. A short-term loan can usually have the money in your bank account within a few hours with a flexible repayment plan. If there’s a paycheck on the way and it’ll cover the loan, short-term finance can be a great solution

If it’s a longer term problem, why not encourage them to sell a few items around the house, move to a smaller place or take some more drastic steps to reduce their spending? It may be that they’ve already considered it but need a friend to help them through the process or it could be that they are in denial about their financial problems.

|Geoffrey specializes in the finance industry when he is not blogging he blogs on behalf of www.wonga.com – a short-term loans company, based in the UK.

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