Last week I wrote a blog post about lending money to family and friends. If you recall, my first tip for you was to discuss the need for the money. Ask questions and don’t be shy about doing so. This week, I’ll give you three more tips to keep in mind.
The first is to consider lending cash. By this, I mean that you should not co-sign a loan or provide a credit card or charge account to a family member or friend in their name based on your credit worthiness with you as the responsible party. This will protect your good credit score and limit your potential loss to the amount of cash you hand over. It will also keep your credit options available should you need a loan for yourself.
Second, consider the impact that lending the money will have on both your immediate and extended family. Once other family members find out that you have lent money, they may feel emboldened to ask for a loan as well. If you are unable to comply with this additional request, it could end up driving a wedge between you and the family member. Depending on the family dynamics and who you are lending to, it may be worthwhile to call a close family meeting and be open, honest, and upfront about who you are lending to and why. It could be that another family member is willing to help, thus easing the burden on you. Either way, you need to consider the impact that making a loan to one family member will have on the entire family.
Third, do not lend more than you can afford to lose! That’s right, it may seem obvious, but do not lend more than you can afford to lose because there is a good chance you will not see this money again. And, if you are going to help a loved one, you need to be comfortable with this possibility. You do not want to drain your own emergency fund or put your only savings at risk to help someone if there is a good chance you will never see the money again, or at least not for a very long time. Despite their good faith and best intentions, your family or friend may fall on hard times and not be able to repay the money.
There you have it: lend cash, consider the impact, and don’t lend more than you can afford. So far, I’ve covered some of the more dire points of lending money. Next week, I’ll cover practical tips if you do decide to lend money.
As an independent Certified Financial Planner™, I can help you decide if you should lend money. Contact me and let’s discuss your situation. #talktometuesday #getstarted #HowIcanHelpYou #GetHelp #Hireaplanner #familymoney #lender #CFPPro #savemoney #borrowmoney #lendmoney