Should You Borrow from or Lend to Family

Money can be a difficult topic to negotiate, especially when the issue revolves around loans. When miscommunication creates a misunderstanding even the most solid relationship can be tested. In fact, it is for that very reason that many of us are reluctant to ask for or lend money from family members. We want to avoid some of the horror stories we have heard, but what if you really have a need or see a need and want to help? You can avoid some of the pitfalls that often come with borrowing and lending to friends and family simply by adopting some of the following suggestions.

1. Don't underestimate the power of paper and pen Before you offer or accept a loan be clear about how much money will be involved as well as how and when it will be repaid. It can become very frustrating when you borrow money to be constantly hounded about when you are going to pay it back. Likewise, it feels terrible to loan money only to avoided or offered excuses when the time comes to pay up. Both parties should discuss the terms of the loan, which should then be written down. Both parties should also sign and receive copies of this loan repayment agreement.

2. Assume the agreement is still in force until you know otherwise It can be puzzling to make a loan to a family member and then watch him or her spend money on items that don't seem necessary. You can reduce your stress and frustration by honoring the agreement. There is no reason to monitor spending by the borrower or to assume that you will not be repaid just because you see spending that you disagree with.

3. Don't loan money that you need back...or at least not right away You surrender all control over the scenario when you hand over money that you will need for your mortgage or another critical expense. The borrower may have every intention of repaying the money as agreed, but as we all know things do come up. Stay out of a potentially sticky situation by loaning only the money you don't need to meet your critical financial obligations.

4. Don't loan to known agreement offenders If you have had a bad experience with a family member and a loan in the past it is wise to assume that nothing has changed the next time the subject comes up. Save yourself the annoyance and frustration that comes from dishonored loan agreements. Don't loan money that experience shows will not be returned.

5. Don't let guilt be your guide Don't loan money simply because you feel guilty or have a hard time saying no. If your instinct says that a loan will not be a good idea, its best to follow your gut. There may be other ways that you can help without getting burned. For example, you might give the number to help agencies such as United Way, or help your family member make out a budget, or provide another useful resource. Saying no doesn't mean you don't care.

Send this to a friend