Lending Money to Family and Friends

Planning & Saving
on October 2, 2012

What would you do if a family member asked you for money? That is a tricky question for anyone to have to answer. Your first reaction may be to want to help out a family member in need. However, you have to also consider if you are going to be repaid or not. Start by asking these questions:

How Much Are You Lending?

The first thing that you have to consider is how much you are lending. Lending anything under $100 you should do without asking a lot of questions. However, if you are being asked for anything greater than $100, you should get some sort of repayment plan in writing. You don’t want to loan $1,000 that you will never see again.

What Is The Purpose Of The Loan?

The nature of the loan should also be taken into consideration. If you are being asked to lend $500 to cover the rent for your brother who has two kids, you might do it for the kids. Investing in a business is another good reason to loan money to a family member. You certainly want to see your family succeed. This is even more true if you stand to make some money from your investment.

Will This Money Be Repaid?

Are you reasonably sure that you will see your money again? If you need to see the money back, make sure that you are loaning only to someone who can afford to make you whole. Otherwise, you may need to tell your sister or cousin that you cannot afford to help out right now.

How Does This Impact The Relationship?

Loaning money to your parents on a one-time basis could be considered as nothing more than a favor. However, if your parents were always asking for money, it could strain the relationship. Would your mom be mad at you if you refused to lend the money?

If so, you may want to help her find a government program that could help her get money for groceries. Perhaps it is time to help devise a budget that will get your parents back on solid financial ground. Financial help doesn’t always have to come in the form of an emergency loan.

Lending money to a family member is not always a good idea. It may be better for you not to lend the money as to avoid further conflicts over any failed attempt at repayment. Your family can only lean on you so much before it becomes too much for one person to bear.

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