With the Coronavirus hitting everyone’s economies, times are tough and money is not flowing as it was before, you have limited options regarding where to look for it. If you do have a healthy credit score, you have the option to apply for a loan. Emergency loans for example are a good option for those who are in need of fast cash. However in most of the cases, your bank or financial institution will ask you to pay for some initial fees. Remember to keep an eye on the different kinds of loans, as some of them might take advantage of you, such as loan sharks. Therefore, sometimes is better to ask for money to a member of your family first.
In this article, I will share some insights regarding what to expect when lending money to family members.
- Before you lend the money
The best way to avoid problems is to treat that friend or family member who is asking you for a loan like a business agreement or deal. This is key when preserving your most valued relationships. Some tips from the experts are:
- Be flexible a have a relax approach. Going into a family loan is not an easy path, so you will need to lower down your expectations. Consider the possibility that maybe; you won’t ever see the money again.
- Do not expect them to pay you straight away. As your relatives or friends won’t feel the huge pressure of a financial institution, they might get accommodated, and won’t take this loan too seriously. As a result, they might be late on their payments.
- Write a checklist. Make sire that you have a plan for this situation, as you might encounter some challenges from time to time. This way, you will have everything written down in a piece of paper, so you know exactly how things are going at a certain moment.
- Things to consider before lending to a friend or close relative
- Setting a budget. The first and most important thing is to set a budget before the process starts, to see if you actually have enough money to lend. Right after, check both your bank accounts and credit card statements from the last 3-4 months.
- Things won’t be easy. Unfortunately, if a close friend or relative asks you for money, you will find yourself in a very difficult position. Saying ‘no’ appears as unviable, as you do not want your family or friends to suffer.
- Find out if they can afford it. Do not be ashamed of let them set their own budget. It is best to do this before you actually lend them the money.
- Plan, plan, and plan again.
Outlining a plan beforehand will make things so much easier and will run smother for both you and your borrower buddy.
- Plan ahead if they cannot afford to pay you back. You must be positive and trust your people from the beginning, although you still need to consider what you will do if they cannot afford you pay you. Therefore, plan to have a chat with them and put on the table both situations.
- Have a clear plan of the arrangement. It is always good to have a clear document where you have stated the whole agreement. Or maybe, you might want to make it official
- Obtaining collateral. A great tip here can be to secure the loan by getting collateral. In other words, taking something from the borrower to give them some incentive to respect the terms of your agreement. Try to do this in a smooth way, so no one gets offended or abused.
- Some consequences as well…
Keep in mind that things might get worse too. If your borrower does not respect your agreement, you must take action on it. Try to talk to them first to figure out different options. You might consider changing some terms on the initial agreement and adapting it to your person. If you decide to go for it, you should sign together the new agreement. Ask for help to a third party or person if you cannot work things out in the end. You do not want to lose those valuable relationships in a matter of money.