May 05 • 2 mins read
10 Smart tips to keep in mind when lending money to friends & family
When your friends and family are facing tough times, it’s only natural to want to help them as much as possible. If they need financial help to see them through a tight spot, loaning them money may be a very good idea.
However, there are a few things you should keep in mind about peer to peer lending:
1. Know Your Own Limits – The golden rule of money lending is ‘never lend more than you can afford’. It doesn’t help to loan someone money and then run out of it yourself before they can pay it back!
2. Ask Why They Need It – This can be a little uncomfortable, but it’s necessary. Always ask about the purpose behind borrowing money, and don’t be afraid to say no if you think it seems frivolous.
3. Cash Loans Are Best – While you could offer to pay the borrower’s expenses through your credit card, cash more helpful. It’s accepted everywhere, and can be used to pay for a variety of needs.
4. Talk About Repayment – Before you lend anyone money, even a loved one, make sure you discuss and agree upon the repayment terms. Be clear about how and when your money will be returned.
5. Charge Fair Interest – Asking for interest on a peer-to-peer loan is only fair, though you can charge less than personal loan interest rates. After all, the same money would grow if you invested it.
6. Make a Legal Bond – Even if you trust the person to whom you’re lending money, put everything in writing with a legal bond. This eliminates any possibility of confusion or bad blood at a later date.
7. Keep Relationships Separate – Avoid letting money matters affect your relationships with friends and family, and don’t EVER use a loan you’ve given someone as a weapon against them!
8. Plan for Worst-Case – The old saying “hope for the best, plan for the worst” applies perfectly here. Consider how to deal with the possibility of a friend or family member defaulting on repayment.
9. Talk to Your Family – Discuss the loan with the rest of your family before agreeing to it, especially those who depend on you for financial support or have loaned the same person money in the past.
10. Learn How To Say “No” – If you are uncomfortable lending money or just can’t afford to, saying “no” is okay. You can always help loved ones apply for personal loans or explore other solutions instead.
For people with a low CIBIL score or poor credit history, getting a traditional loan can be a tough task. If that’s the reason they’re asking you for money, point them to a flexible lending platform such as MoneyTap, which takes other factors into account for personal loan approval as well.
Rather than approaching friends and family for loans, they can simply download the app, apply for a line of credit, pay interest only on what they use, and repay it over time!