Lending money to family and friends
An 8-step list to help you navigate loaning money to loved ones
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Do:
1. Think twice before lending (or borrowing) money. Consider how it will affect your finances, and your friendship.
2. Discuss other options—there may be another way to help without going into your wallet.
3. Be clear about expectations. Draw up a schedule for payments and talk about what happens if the loan isn’t paid back.
4. Get it in writing. Use a contract to set ground rules so everyone knows what’s expected.
5. Charge interest. This can help inspire a faster loan repayment. Just remember to claim the interest income on your tax return.
Watch: Should you help your siblings with their financial woes?
Don’t:
1. Expect to get 100% of the money back. “Go into a family or friend loan situation with the mindset that you’ll never see the money again,” says Mary Kelly, author of Money Smart.
2. Ignore problems. If payment is 30 days overdue, discuss it.
3. Co-sign a loan unless you’re sure the other party won’t default and leave you holding the debt.
Related:
- Can I leave money to my niece through a codicil?
- Not all rate hikes are created equal
- 7 tips to plan a smarter retirement
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