The Making of a Loan Star

A friend or family member borrowing money from you is a common situation most of us might have experienced.  If someone is borrowing money from you, take into consideration why they chose you from a list of people they might know. They might see money pouring on your business, your pay rolls are adequate and may be because of the nice house and car, but what borrowers don’t often see is the fact that it’s the credit line that keep those doors open and the margins for your profit is quite thin. Despite this financial fact, many people don’t see that friends, family and finances are never a good mix.

We often hear situations where people borrow as much as $20,000 from friends or family members saying they need the money to save a house from foreclosure, or investing on a business to start their lives with. In some situation it ends up the way they claim it, but in most, the money goes out for iPhones, expensive vacations and cosmetic surgeries. What do you get in the end?  A foreclosed house, loads of money wasted and a broken relationship.

While some might just decide not to make personal loans, others might feel the strong urge to lend a loaning hand to troubled family or friends, if you decide to do this, consider the following:

●     Talk About Other Ways

Discuss alternative ways on how to solve the problem, there might be other ways to resolve the issue, money is not always the answer.

●     Lend the Right Amount of Money

When lending a loaning hand, lend only the amount you can afford to lose. The possibility is you may not see your money returning to you again, so don’t lend an amount that would possibly drain your finances. Put your own financial well being first, when times get really rough and the borrower is troubled by paying the finances, at least you wouldn’t be as troubled as them.

●     Have Clear Expectations

Communicate your expectations; let your borrower know what you want the payment plan to be; when it should be paid and how. It would also help to make a payment plan together by making a loan schedule; you can do this by using an online calculator at websites such as Bankrate.com, Tell them your expectations, and also draw expectations from the as well. If the two don’t match, you can always find a midpoint where the two of you can agree. Also discuss what would happen if the payments are not made on their due time, discuss backup plans if something wrong happens.

●     Write It

Having a written agreement is of course stronger than just a verbal one. Fill out a form that would reflect the agreement, sites such as LawDepot.com offers you complete forms for promissory notes for only $15. Free templates for your written agreements is also available at sites such as ExpertLaw.com

●     Be Straightforward

You might think it’s a nice gesture not to remind the borrower of his or her due, but this action could just put you into trouble. When payments are past the due date, you should remind them directly, let them know that you are keeping a track.

●     If You Can Afford….

Well if you can afford the amount that is borrowed from you; consider giving it instead of lending it. This way you and your friend or family member won’t have ill feelings. If repaid then good for you, if not; think of it as a help.

This article on loans is written by Maurice Johnston, author of numerous articles on loans, lending, and budgeting. Maurice tackles practical topics on loans such as lending to a friend or a family member and she writes at http://www.speedyloan.com.

Share |