• Monday, December 04, 2023
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Lending to friends, relations… the complications you may face


  Mixing money and r e l a t i on typically is not an advisable financial move. Often times you find personal feelings tangled up in a web of financial burdens and it can be a very unpleasant and potentially long-term experience. It can be made even more complicated when the ones you are closest to are turning to you for help with their own debts, especially if you are just turning your own financial situation around.

You certainly don’t want to see your friends suffering without food or electricity. When they come to you for help you probably don’t even think twice about getting their bill paid off. But over time, it seems the more you help, the more they expect. It is a bad position to be in a position when on one hand, you feel obligated to help, yet on the other hand you feel taken advantage of over and over again.

Overlook the Guilt: As an individual with your own financial obligations to meet, the matter of helping anyone else financially should be based on your financial abilities and not the obligation of intimate friend. It may sound harsh, but the logic here is that if their needs put your finances in jeopardy, everyone ends up in the same sinking ship. If you feel you have plenty to give, do it. But if your first concern is how you’ll get by while you help them out of trouble you need to seriously consider other options.

Make your calculation: Hopefully you are financially comfortable because you have been working on your budget and have been committed to saving. You should know where you stand and how much you can afford to help someone else. Look at your finances before giving anyone a definite answer so you can be ready with a specific amount.

Consider your risks: If your brother is asking for a decent amount of money in the form of a loan, you really need to think about the consequences, that is, if you are prepared to deal with the fallout that will happen, if he doesn’t pay you back and also willing to get an agreement in writing and make it legal concerning the repayment terms.

Be firm with ‘No’: If you decide you are not able or willing to lend out cash to anybody, be strong in your resolve to say no. Don’t delay in giving your answer. The longer you wait, the more difficult it will likely be. This may result in your giving in and handing over money you can’t afford to lose.

Protect yourself in the case of a death with proper documentation. If your loan is undocumented and one party dies before the loan is repaid, you may face issues. For example, if the recipient of the loan dies before the loan is fully repaid, the lender might come after the recipient’s heirs. If nothing is documented, the heirs can deny that such an arrangement existed, and the lending party would be out his or her money. On the flip side, if the lender dies before repayment, the recipient might say the lender had indicated that the rest of the loan was to be forgiven in the event of his or her death. Again, without proper documentation, this would be hard to prove.

And most important: You have to be comfortable taking your relationship from “just friend” to “lender/borrower”. If you don’t treat your loan like a loan, you will never see any of the money returned.