10 Factors to Consider Before Lending Money To Friends. A friend in need is a friend indeed. But sometimes loans between friends are never a good idea. Before loaning them something consider the following 10 factors below.
1. Discuss Other Options
Before reaching for your wallet discuss other possible options. Are there other ways to help? Money isn’t usually the only solution. You can offer to help without giving out cash.
2. How Close Are You?
If it’s someone you met recently or who isn’t a close friend, you have to wonder why they’re asking you specifically for money and if it means they couldn’t find anyone else to do it.
3. Lend What You Can Afford To Lose
Lending money is like gambling, sometimes it doesn’t come back. Having noted that, don’t put your own financial well-being on the line for your unreliable friends.
4. Be Clear About Your Expectations
Draw up a payment plan. You can use the online calculator at Bankrate.com to create a loan schedule. And discuss what will happen if something goes wrong.
5. Have They Asked You For Money Before?
Repeated loan requests are a bad sign, as it usually means the borrower isn’t managing their money well. By helping them out all the time, you’re enabling them and making it more likely the pattern will continue.
6.Get It In Writing
This will be your security should problems arise. No matter how long you have been friends, trust can be expensive. So you need to write it down and both put your signatures on paper.
7. Deal With Problems Right Away
You may feel you’re being kind by not sending a reminder that the payment is 30 days past due, but you’re just setting yourself up for trouble. Let the borrower know you’re keeping track.
8. Your Friendship Might End
If you lend money to a friend or family member, beware that you may not get your money back and your relationship may never go back to normal. This will cause tension between you and the borrower, and may also cause guilt, remorse, and anger.
9. Don’t Enable Bad Financial Habits
It doesn’t mean that someone has bad financial habits just because they ask to borrow money, but it’s a possibility. A lot of people aren’t good with money, and they’re less likely to learn if they can get an interest-free loan with a flexible term anytime they need it.
10. Prepare For The Worst
The borrower may not pay you back, either because they can’t, because they decide they don’t care about paying you back, or because they suddenly get the idea that this money was a gift, not a loan.