Lending money to Friends and Relatives? Think about these points first

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Amidst our hundreds and thousands of Facebook and Whatsapp contacts, it all boils to a handful of people who truly matter in our lives. Friends and relatives with whom we have forged strong ties since ages. But even with these loved ones, things can become awkward, especially when it comes to money. It can be a sticky situation when friends/relatives ask for money. It could be even someone from your business community. You may harbour a life principle not to get into such a precarious position at all and keep money and relations separate. Or you may contemplate to lend but fear relations can sour in the future.

As William Shakespeare popularly quotes: Neither a borrower or lender be, for loan often loses both itself and friend.

Here is how you can deal with such situations depending upon your willingness and intention:

  • Have the nerve to say NO: It is important to think straight in such situations. Any half-hearted decision based on emotions will be a disaster. Because, that would mean you are lending money but do not genuinely want to. This actually builds up resentment later just because you did not have the courage to refuse. So, learn to say ‘NO’ in the first place if you are unwilling to help in money matters. It may sound unpleasant to say ‘NO’ to a loved one in financial need but that doesn’t make you selfish. On the contrary, it would save the potential bitterness springing up in the precious relationship in the future.

There are many ways you can refuse politely:

  • I am not comfortable lending money.
  • I am sorry but I am not in a position to lend.
  • It is not feasible right now.

Keep it short and brief and do not discuss your finances in detail. You can even help your friend brainstorm other sources of funding. If he is a good person, he will gracefully accept your decision and appreciate the offer of helping in other ways.

  • Lend for the right reasons: If you decide to lend money to friends/relatives, it should not be out of any guilt or pity. Your decision should depend upon the borrower’s personal situation and character. If you know the person is irresponsibly spendthrift and has a history of asking money from closed ones, then you may not want to encourage such a practice. Ask for specific purpose of borrowing. Knowing the same will enable you to make the decision whether to lend or not in the first place. You may also be able to gauge how transparent and forthright the borrower is in sharing his financial problem with you. A medical emergency in the family, business going broke could be a few situations wherein you may want to consider helping your friend with money.
  • Lend money you can afford to lose:  There is a possibility that your friend may not return your money, willingly or otherwise. So, do not lend 100 per cent of the amount if it is a mammoth figure. Lend only which is within your means to lose. Decide the amount you can part with, after taking into consideration your personal short-term goals, i.e., if some big expense is coming up in the near future and you have arranged for it.
  • Do not hesitate to mention payback: While lending to dear ones, the issue of payback is a crucial one and has to be brought up. If you do not mention it, the borrower may take it for granted that you do not expect the money back and are helping out of charity. Without sounding rude and obvious, you can tactfully slide this into the conversation stating you would require money in the short/medium term for some goal. This would give the borrower a subtle hint that you are expecting the payback.
  • Write it down:  Irrespective of the borrower’s intention of repaying the money or not, it is better to put it up in writing. There are two positive points to this. This could avoid any potential friction in the future on the conditions set at the time of loaning the money. Another thing is that the borrower will also take the payback thing seriously. It does not have to be a legal document. A small hand-written note including the date, loan amount given, signature of the 2 parties and of witness, period of payback, (scheduled, if any), interest chargeable (totally at your discretion) can be sufficient.
  • Keep your family in the loop: Financially helping a friend/relative may not go down well with your immediate family members including your spouse, parents, etc. Such money issues can become the bone of contention between you and your family members. If something goes wrong in the future, they will only have you to blame further stressing your personal relations. They may have their own specific reasons against lending. Hence, ensure that you seek their opinion, take them into confidence and have a mutual stand on it.

 Hope these points will help in tackling such money situations with loved ones in the future.

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