Saturday, November 5, 2011

3 Tips to Lending Money to Family Members

If you have more money than any of your relative then you are the person to whom your family members will go when they need a loan. It is much easier to ask a family member for money than it is to grovel at a bank, especially since relatives usually feel more of an obligation than financial institutions. Shakespeare once rightly said, "Loaning money to a friend is a good way to lose both - friend and money." Lending money to family members is a risky business. Not only do your relatives feel comfortable asking you for money, but they also feel more comfortable paying you back late.

Here are some tips to conduct a financial transaction between family members and make sure you get back your money and your relationship grows.

Find Out the Purpose
You talking about money, you have every right to know where your money is going. If you are not comfortable with the purpose you can decline on your offer of lending money. Is the money used to pay off some long pending loan or due to an emergency situation like loss of job or unexpected medical bills, or because they made poor spending decisions? Analyze whether the money you offer, will it be used for something that will improve their life, like a down payment on a home or education? Only once you confirm the reason you plunge into this business of lending money.

Have a Contract

When you lend money to your family members get it in writing. The contract should state the amount of money offered and the te rms to which you agreed it should be paid back. Both you and your family member should sign and date it and you should both keep a copy. This protects both of you from any misunderstandings or miscommunications. By ignoring this you don't want to get stuck with your own bad debt later.

Use a third party

If the amount is substantial you should consider using a peer-to-peer lending company. They can help you with any disputes a nd make the transaction less personal. A witness can be valuable in helping you win your case.