Key rules to keep in mind while lending money to friends
Most people get hit up for a loan and during these times offering them helps to brainstorm different sources for a loan or ways to bring down their debt can be risky. It is a very thoughtful move to do so and if you are not careful it may be much similar like stepping into a minefield.
In the given scenario of today’s economy, it is very easy to apprehend the ways one can find them in a tight financial situation. Therefore, you are a lender or a borrower, you must know the intricacies of money lending so that you do not turn up in the dark alley or in a debt hole.
The basic concept of money lending is to help others, known or unknown, in their financial stressful situation and need an intent to earn a little profit in the form of interest on the loaned amount.
On the other hand, the borrower must pay the excess amount in interest ingratitude of the lender being an aide in just about the right time when they needed a helping hand the most.
This is just simple facts about money lending. If you look at it deeply, you will come across several stories where loans have gone wrong even when it is lent out to friends and family members. Relationships can be ruined or torn apart besides the fact that you will have your funds fast depleting that you might need yourself now very badly.
Sometimes, you may feel that the borrower will pay you back but still, you may find it hard to determine whether or not you should go ahead with the process.
If you want to make money lending your profession and be successful just like some big names in private money lending such as liberty lending US and others, you will need to be very strategic and follow a specific guide towards making the right decisions.
Here are a few tips and advice gathered from expert financial advisors that will help you big time if you consider these before you crack open your wallet.
Lending to a friend or family
When you loan out money to your friend or family, say yes if you actually mean it. You should never go ahead with lending money if you do not feel confident about your decision. If you feel guilt-tripped into making the loan, give the idea up.
Moreover, the desperation of the borrower is another point of concern and you should be very careful in determining whether or not you will get your money back from such a borrower who is desperately looking for arranging money to meet his or her monthly bills.
Remember, if you are unsure about the repayment when you lend money, you automatically risk feeling resentful. In such a state, the relationship is crippled, especially if you lend the money to any person known to you. This will happen even before it is time for the borrower to repay you.
One significant thing to know here is that there is nothing selfish or being bad to your friend or anyone if you say no when they ask you for money. This will, in fact, protect your money from being wasted and at the same time save your relationship from being broken, believe it or not.
Experts, therefore, suggest that you decline to make a loan in ‘desperate’ situations graciously and politely.
1. You can always say that you would love to help but you do not have the kind of money your friend has asked from you right now.
2. You may also mention any unexpected expenses that you may hit recently if you really have to explain things to your friend further.
Some easy and believable excuses can be a higher health insurance premium, something you must save for such as college education for your kids and much more. A true friend or a relative will understand your situation and accept your denial graciously as well and even may thank you for your concern and offer additional help required. If they do not, you will better off not lending the money and ruining the relation for sure in the future.
Afford to lose
When you lend money to anyone make sure that the amount of money you lend is excess and you will not need it sometime very soon. Remember, financial emergencies do come and most of the time they come without any notice.
Moreover, you should lend only that much amount that you can afford to lose because all borrowers will not be as diligent as the other while repaying their borrowed money with interest on time. As for them too, financial turmoil can aggravate at any point of time and without any prior notice. Therefore, even if you lose a specific amount it should not affect your financial health and bring it crumbling down.
Just imagine the level of stress between you two when you desperately need the money back for your personal and financial reasons and the borrower cannot repay it even after having the best intentions for their personal and financial reasons.
Other rules to follow
There are a few other strategic process and rules to follow during lending money.
1.Irrespective of whom you lend the money, always ensure that you create a firm yet reasonable repayment timeline. Do not take it for granted that both of you are on the same page but make sure that take you both on it. A repayment schedule is a carefully thought-out plan both for the lenders as well as the borrowers.
2. Make sure that you put everything in writing because memories fade especially when an amount of money is borrowed a long time back. Within this time, priorities may get shifted and loan terms may be forgotten, both creating a lot of problems between the lender and the borrower. A loan repayment schedule will prevent any miss outs in payments.
Lastly, make the entire process business like and be professional in your approach. If payments do not keep coming on time, there is no harm in following it up with multiple reminders.
Kelly Wilson is an experienced and skilled Business Consultant and Financial advisor in the USA. She helps clients both personal and professional in long-term wealth building plans. During her spare time, she loves to write on Business, Finance, Marketing, Social Media. She loves to share her knowledge and Experts tips with her readers.
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