Most of us have been faced with an unpredictable financial situation at some point. A family member or a close friend comes to us, asking for a loan. Your heart wants to help him or her, but your head says no.
Lending a family member money is always tricky because you don’t know whether they will keep their word and payback, or they will simply view it as you trying to help out. When a family member approaches you for financial assistance, It is essential that you make it clear that it is a financial transaction between two individuals who are willing to stick to the agreement of the deal.
With that being said, always consider that the member might end up not keeping his or her end of the deal, so always make sure that there’s a clear set of rules set out in the first place. According to Investopedia (2019) “ If a family member is willing to help you with your financial situation, take it. You can pay them back over time while being able to keep up with your other expenses. Bank loans, on the other hand, can cripple your financial plan, chewing up more of your income than you can afford.”
Here are some of the things you need to consider if you decide to lend money to a family member
Think before you lend money to family member
Lending money to a friend or family member should be taken as a business to ensure that it doesn’t ruin a good, valuable relationship. It is advisable to always think about the decision before you decide to give financial support to family members. Here is an essential list of questions to be answered before you lend:
Has this family member borrowed money from me before?
Did he or she pay me back?
Did the family member pay me back on time?
Always keep your expectations low
This is a difficult outcome to grasp; however, people tend to not keep their promises. Unlike financial institutions or a loan shark who will repay themselves with existing assets, family members don’t always have that option. So, sometimes don’t expect to get the money back.
Don’t expect repayment within a short period of time
The reason people need loans from family is that they typically cannot get a loan anywhere else. If you decide to lend a family member money, expect the money will be paid within six months to one year. Especially if it is a considerable amount of money, so understanding their financial situation is very important.
Consider the loan a gift
This is another alternative you can choose to take when offering financial support to a family member. If you realise that this person is struggling financially to pay you back, you can always give them the loan as a gift. Again, this means you’re losing; however, you will be helping someone who is in need.
When lending family members money, always keep in mind the good and bad outcomes. This will help you make a decision and always help you maintain a great relationship with your loved ones.