What should you remember while lending money to friendsfamily (1)
May 28, 2022

In times of need, be it for money or emotional support, we always first look up to our family. In case of borrowing from a family member, you can avoid the prolonged documentation methodology. 

It is mandatory to fulfil all the documentation prerequisites and adhere to the duration and conditions with a lender. Every financial institution requires your documents and some tedious processes to cater to.

For many people, borrowing from a family member is a much more feasible option than borrowing from an external source such as a lender or bank or any other financial institution. 

The lending clause for family

Instead of borrowing from a family member, many people plan to borrow cash loans in 1 hour in Ireland. Loans from these lenders are a good way to meet the funding requirements. In the case of lending money, if you are at the giving end, you have to be cautious and take into consideration a few things. 

It is better to avoid any misunderstanding or confusion at the beginning rather than breaking ties due to any confusion in the middle of the process. It may hurt your relations and finances both. 

Points to remember while lending money from friends and family

Do not confuse it with a gift

Sometimes, if you are lending money to a close relative or a friend, they may confuse it with a gift from your side and may not consider repaying it. They may take the whole loan process casually. 

Therefore, it is important to clear out things at the beginning. Your message should be very clear and should not stand a chance of any miscommunication. 

Be clear with the repayment timeline, interest rate, and additional terms and requirements. Conclusively, ensure it is a loan ad, not a gift. 

Other than financial ways to help your family 

It is kind of your to help your family in monetary terms. But if you do not lend the money, you can think of some other ways to help your family, such as offering them employment or becoming a co-signer for their loan approval from an external source. 

Becoming a co-signer may involve the risk of impacting your credit score in case the borrower fails to pay back the original amount. 

If you do not want to offer money considering your future relationship with them, you can help them procure funds in any other way. 

Be aware of the legal formalities involved

If you have decided to lend money to your family or friends, make sure you are aware of all the legalities involved in the process. Also, sound off all the legalities to the borrower as well. 

To secure your transaction, the best way is to hire a legal attorney who will make you aware of all the risks involved at every step. 

You also have to understand the objective of borrowing before you lend them the money. Once you have taken all the measures, you can proceed with the lending process. 

You can use online modes

To ensure the security of your transaction, you can choose an online medium such as online banking. This will keep a record of your transaction and leave no scope for any conflict. 

If your family is insistent on getting cash, you can pay a small part of the money and the entire remaining amount through online banking. 

The interest rate

Mostly, the amount that you lend to your family or friends is tax-free; hence, the interest rate is totally up to you to decide. It is crucial to know that it will be counted as your taxable income if you are charging interest on the loan amount. 

Most people in need of money are willing to borrow from a family member or a friend to pay a lesser interest rate than the prevailing rates in the market. 

Thus, if you are charging an interest rate on the amount, you can decide the tenure according to you. Both parties must agree on the tenure and interest rate to run the process smoothly. 

Say no if required

If a family member or a friend approaches you and does not have the required funds to lend them, do not hesitate to say no. Communicate your condition politely to them and do not be harsh in your approach. 

Be clear and polite with your reasons and offer them help in finding other alternatives for their funding. You can give them the option of business loans in Ireland. These loans are a good way to meet money needs.

Is it essential to share a contract?

If you have any hitch or doubt, you can always go for a legal contract to make things official. You can also go for a promissory note, i.e., a promise from the borrower to pay back your amount within the stipulated amount of time. 

You can include any condition, such as the agreed rate of interest, the payback tenure, and the total amount payable in your note. In case of an agreement, make sure to have witnesses to avoid any disagreement or conflict in the future. 

Before getting into any kind of agreement, always remember the consequences if the borrower is unable to pay the loan. It can either lead to sour relationships, or you may break the ties completely.  

Conclusion

You should always be careful in lending money to your family or friends. Consider each and every point before getting into the lending process. It is always easy to lend money, but repayment is the most challenging part. Hence, make sure that there is no problem in the process.

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