Should You Loan Money To Family?

By First Posted: Oct 23, 2010 Sat 12:52 AM Updated: Sep 20, 2018 Thu 6:42 AM
Should You Loan Money To Family?
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We all have our ups and downs in life. So it is natural to want to help a friend or family member in need. Your near and dear ones expect your support in their tough times. They expect you to stand by them, giving them emotional support. Sometimes, they also expect you to give them financial support. What do you do in such a situation? Experts say that you should loan money to family only if you never want to see that money again. You don't really need to be an expert to know that. Here are a few guiding principles on how to deal with loans amongst family members:

Give a loan only when you don't need the money: There is little possibility that you will get your money anytime soon after loaning it to a friend or family member. So give out such loans only when you don't need the money yourself.

Losing Interest: When you make this decision, remember that you will forego the opportunity to earn interest on the money in question. Even if your family member offers to pay interest, you are unlikely to accept it. So weigh the income potential when you decide.

Amount of Loan: Always remember that there is a big possibility of never seeing the money that you loan out to family. So you should be careful about the amount you give out as loans. It is your hard earned money and there should be a limit on how much loss you can take. Know that limit and stick with it.

Agreement: Though there is little chance of seeing your money again, you should not give up hope. So do everything possible to make this loan official and binding. Have a loan agreement drafted and notarised/registered in court. You never know when you might need this little document!

What is Valuable?: If you think relationships are valuable to you, you should not give loans to family. If you give out loans, you cannot ask for your money back (coz you value relationships). When you don't get your money back (who repays a loan without being asked for it?), you are bound to feel resentment. Imagine what this resentment will do to your relationships!

All said and done, you are strongly advised against loaning money to friends and family. This results in loss of your hard earned money and breaking of valuable relationships. So go with the advise of elderly and avoid mixing money and relationships.

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