Sometimes giving loan to friends or family member often results in the loss of both the money and the relationship. In fact, loans between family members or friends can result in an entirely unexpected set of problems. Consider the following reasons not to lend money to them, and some tips to help you with damage control if you do agree to loan money.
Many people have lent money to friends and family members and borrowed money from family members and friends, and neither situation worked out very well.
So, you have to learn a lot particularly from experienced people. From experience, people have learnt that they’ll never lend money to friend or family member again, for the reasons outlined here. If you’ve already decided to loan money to someone close to you, here are some tips to help you lessen some potential areas for communication breakdowns:
Loans to family and friends tend to be open-ended. The parties don’t reach an agreement for a timeline for repayments, and don’t include interest on the loan. Lenders don’t know when their money will be returned, and borrowers don’t know when to repay the loans.
This doesn’t allow both parties to expect his or her money at a specific time, and doesn’t set any expectations. The uncertainty can lead to stress as the borrower may worry that the lender expects payment and the lender worries about when he or she will be repaid. That’s reminds me of when I loaned money to a friend, it delayed my decision on when to buy my first laptop, that happened some years back.
If you must lend money to a family member or friend, provide them with a time limit and a schedule for repaying the loan. The time limit provides a final deadline for total repayment of the loan and the schedule provides them with guidelines for making monthly payments, as the case maybe.
Experts say, loans are not a Priority. With an open-ended loan, the borrower may not realize that there is a sense of urgency to repay the loan. Without a deadline, repaying the loan becomes the borrower’s last priority. The borrower won’t face any repercussions for not repaying the loan, like late payments, higher interest fees, or a negative impact on a credit score. Without the threat of penalties, the borrower has no motivation to take the loan seriously or to put any urgency around repaying it.
Talk with your friend or family member and let him or her know that repaying this loan needs to become a priority. Set a deadline for repayment to avoid any misunderstandings. It can be difficult to request repayment of a loan from a friend or family member. More than likely, the lender cares about the borrower, and doesn’t want the borrower to feel embarrassed.
Sometimes, lender may continue to worry about loan repayment, and thus shut down some or all communications with the borrower in order to avoid talking about the loan. The borrower becomes confused and hurt feelings can result.
If you have already lent money to a friend or family member and struggle with asking for the money, take your time to talk to the borrower to resolve the situation. Offer him or her gentle reminders about the loan instead of asking direct questions. This made the discussions easier and less threatening. No one likes to talk about loan or about money or even about anything that costs money, because people might wonder why someone hasn’t repaid the loan.
You and the other party came to a private agreement about the loan. Neither party should feel uncomfortable, but if family gatherings seem embarrassing, keep things lighthearted and steer conversations away from money.
