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How to Safely Lend Money to Relatives

Lending money to someone you know or are related to is a generous gesture, but must be gone about cautiously. See if you can help them out in an alternative form. Perhaps offer babysitting services, help them search for discounts or bargins at furniture stores, etc. If you do decide to offer financial support however use these suggestions to help guide the process.

Only Lend What You can Afford : you do not want to lend out money you need to pay bills that are due soon. you'll end up having to borrow money yourself !

Be Clear Whether This is a *Loan* or a *Gift* : idealy it is best to offer small personal loans as a gift. waiting for money to be paid back from a friend or relative can strain the relationship - especially if the borrower can not afford to pay it back. if it is a loan youre lending out, dont be surprised if it isn't paid back. Many personal loans are not reimbursed.

Write it Down :  As awkward as it may be, get the details in writing and have both parties acknowledge the document by signing it. Be as detailed as possible, and include the amount, interest amounts if applicable and consequences for late payments.  

Pay Directly: When lending money to someone you know chances are you'll find out how they spent the money. If the borrower asks for tuition help and then you find them at an expensive restaurant you're likely to feel used and taken for granted. Instead offer to pay the tuition to the school directly.

Bring in a Neutral Third Party: Sometimes it's best to bring in a (key word here) neutral third party to help regulate the details when negotiating the amount and payment options.  

Look at the Benefits of Charging Interest : Interest will help encourage the borrower to pay the loan back quickly. Not to mention it will help you out in the long run.

Use Caution When Co-Signing a Loan : Remember - once you co-sign a loan you are responsible for the debt if the borrower cannot, or will not make the payments.

Keep in mind, no matter how careful you are with lending out money to someone you know things don't always work out as planed.

Posted: Monday, April 09, 2012 9:20 AM by Sutton Realty

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