How To Loan Money To Family Members The Right Way
When times get tight, it might feel like you have no options left. You might fear that your family members will resent you for not being able to help them more and worry about how they’ll manage without your support.
However, loaning money to family members is a great way to help them, even though it may be awkward at first. They’ll probably be relieved that you trust them enough to loan them money so they can keep their financial house in order. You can also go one step further by helping out family members with saving money on household bills. For instance, you could help to find a cheaper electricity supplier or recommend low income internet providers, which can provide people from low income families with a stable internet connection.
In fact, loaning money to your family members is a great way for them to build a solid financial future. Let’s take a closer look at why it’s OK to loan money to family members and how you can do it the right way.
Why Is It Ok To Loan Money To Family Members?
Lending money to family members is a great way to support your loved ones, especially if you have no other options. You might worry about the risk involved, but remember that the interest you would earn from loaning money to a bank is often unreasonably high.
That said, keep in mind that the reason you’re loaning money to family members is that they don’t have the funds to do so. Because you have a close relationship, you’re in a better position to ensure they pay you back.
Additionally, you’ll have a better chance of earning a fair interest rate. You can build a relationship with your family members and help them repair their financial situation at the same time.
Communicate Your Expectations Upfront
Before you lend any money to your family members, you’ll want to talk about expectations, payment options, and any other issues that need to be addressed before you sign on the dotted line.
You’ll want to be clear on when they’ll pay you back, how much interest they’ll pay, and how often they’ll pay you back. You should also discuss how the money will be used.
If you’ve given out loans in the past, you may want to create a lending contract. This will help you create a clear, fair agreement that both parties will agree to.
The Loan Only What You’re Comfortable With
Before you loan any money, make sure you’re comfortable with the amount you’re loaning. You don’t want to put your financial situation at risk, but you also don’t want to be too strict and turn away your family when they need your help.
Talk to your family members about how much they need and about how much you’re comfortable loaning. Give yourself some room to adjust the loan amount if you need to.
If you go in with a strict repayment plan, you may be able to forgo interest payments. This is especially useful if you’re loaning money to family members who are in dire straits financially and can’t pay you back immediately.
Set A Repayment Schedule
You and your family members should have a clear repayment plan in place before you sign on the dotted line. This helps you ensure that they’ll actually pay you back.
You and the family member who borrowed the money should both sign the contract so there are no misunderstandings. Consider loaning money in the form of a line of credit rather than a traditional loan if you want to avoid interest payments.
You can set up a repayment plan that allows your family members to pay back the money over time rather than having to pay everything back at once.
Take Care Of Any Accompanying Emotions
Loaning money to family members can stir up a lot of emotions. It can be frustrating for both parties when one person is unable to pay back the money. You may feel like you’re being taken advantage of and be tempted to call off the deal.
You may feel like you’re being too lenient on your family members, but remember that you’re helping them out. That said, if you feel like the situation is getting out of hand, don’t be afraid to talk about it.
Try talking about how the situation makes you feel and what you want to do about it. This can help you work through your feelings and avoid letting them boil over.
Final Words: Helping Family Won’t Be The Last Time
Loaning money to family members can be tricky, but it can also be extremely rewarding. You’ll have the opportunity to help your family members out while also earning interest on the money you loan them. When you loan money to family members, make sure you and the borrower have a clear agreement in place.
Take care of any accompanying emotions so that you don’t let them get the best of you and don’t let them get the best of your borrower. When the time comes, you can be sure that the favor will be returned.
