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How to Lend Money to Family Members Without Getting Burned

Here are five things to do before you lend money to a family member, friend, or coworker. These tips will help you avoid the pain of loaning money to people you care about.

Be careful about loaning money to family, because money is the root of many family problems. Lending family money can be helpful to them if you protect yourself and them by getting a promissory note. These tips will help you lend money, get it back, and increase the chances your relationship will stay strong.

“Be careful about lending a friend money. It may damage his memory.” ~ unknown. If you’ve already had experience with “memory damage” when it comes to financial loans to friends or family, read 10 Highest Paying Jobs for College Students. Either you or your family member needs to get a job.

Memory hiccups are normal in everyday life, and practically guaranteed when it comes to financial loan agreements and repayments! Here are five ways to give a loan to a family member without running into problems later…

Instead of lending money, you might want to share some money tips with your friend or family member…or even buying them a book like Dave Ramsey’s The Total Money Makeover: A Proven Plan for Financial Fitness.

If You Lend Money to a Family Member…

Don’t let these tips scare you! Loaning money to people can be a very helpful, supportive thing to do — and often, money loans are repaid. But before you give a loan, make sure you cover your bases.

Ask why they need to borrow the money

Before you loan people money — even if you’re lending money to your adult children — ask what the money is for. This may help you decide whether or not you should lend the money in the first place. Only lend money for vital reasons: paying the rent, buying food, paying bills, taking care of the children’s needs. Never loan money to friends or family members for plastic surgery, vacations, or other luxuries.

If you don’t want to lend money to a family member, read How to Say No When Someone Asks to Borrow Money From You.

Draw up a loan contract

lend money to familyEven just thinking about a contract or signed agreement raises questions about trust, relationships, and suspicions – but you have to get it in writing. A moment of discomfort while everyone agrees on the loan terms and signs the contract is much better than not remembering how much money you loaned to your friends or family members later! You don’t want to get stuck with your own bad debt later.

Put everything in the contract

This tip for loaning money to family members involves being very specific:

  • How much money you’re loaning
  • Whether you’ll be repaid in full or with a payment plan
  • The dates of the loan repayment or payment schedule
  • What will happen if your friend or family member doesn’t pay the loan on time
  • What – if anything – you’ll take in lieu of payment (a car, housekeeping or renovation services, etc)

Before you draw up a contract to lend money to a family member, read Signs It’s Not Smart to Loan Money to Someone You’re Close To.

Remember: email and text messages are legally binding contracts

You can lend money to friends and family members in different countries, and you don’t need their signature on the loan agreement. Make sure you describe the terms of the loan in your email or text message – and make double sure that they respond with an email or text message agreeing to the terms.

Get a witness to sign the contract

If you have a contract signed by both parties, you don’t need a witness…but it can’t hurt! If you should have to sue your friend or family member for the loan repayment, a witness can be valuable in helping you win your case.

If the shoe is on the other foot – you’re asking your family members to lend money to you – read How to Deal With Money Problems.

If you have any thoughts on loans to family members or other people, please comment below…


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28 thoughts on “How to Lend Money to Family Members Without Getting Burned”

  1. I loaned my brother £600 to buy a car in Dec to get to work, both signing a promissory note that he would pay it back in Jan when his student loans came through. This date came and went and he claimed he still hadn’t received his loan. Then about a month later, I asked again for it and he told me to “go f*** myself” and refuses to pay me back now. Is it worth filing small claims? We don’t talk anymore.

  2. Hi Wilma,

    It’s a difficult situation to be in, especially since your aunt has passed away. I’m sorry for your loss, and for the problems you’re now facing.

    After some time has passed, I think it would be appropriate to contact her husband or son and remind them of the loan. You may want to do this in person — very gently and compassionately — and then follow up with a letter a month or so later.

    It might be wise not to expect to get your money back. Anytime we lend money to friends or family members, it’s always smart to assume that you won’t see it again. This is sad, I know, but the truth is that money does create more problems than it solves.

    I wish you all the best, and hope you are repaid quickly and easily.


  3. Hello… I have a question and need an answer desperately. My aunt borrowed money from me and my husband in the amount of $3,000. After she used the funds, unfortunately she passed away of cancer without repayment the loan. She told us that they had a plumbing problem and also behind a mortgage payment. She promised that she will pay us when she goes back to work but she died. Her husband and son knew the situation and promised to pay us after all the papers and documents will be settled but they never did. What shall I do to get the money back or can we still get it back from the husband or the son?

  4. If you want to get a loan, it’s better to ask family members and not online loan scammers. If you can’t trust your family, who can you trust?

  5. I think it is absolutely ridiculous to me mad at someone for not lending you money. My brother once asked me to lend him $600. He and the wife had an error in the checkbook. I told him I didn’t have it. I did, but I was just getting started in life and wasn’t going to drain my bank account for people who don’t have their act together. I also didn’t want to start loaning him money because then he would be calling me every month. My grandmother ended up lending him the money and I kept my bank account in tact. I don’t ask people to borrow money. I take care of myself so I expect the same from family and friends. People do not HAVE to lend you money if they don’t want to. PERIOD!

  6. I borrowed $1000 from my sister 6 years ago, and it took me two years but I paid it back. She made certain to keep track of every penny. Now my older sister asked her for $5000-and she GAVE it to her and told her she DIDN’T HAVE TO PAY IT BACK!!! Now I have bad feelings for both sisters. #1 sister for loaning me $, and #2 sister for not paying back $. Don’t treat different family members differently. If you give someone $-it’s only fair to treat your other family members the same or there will be hard feelings. I’m not going to another family gathering EVER. See? This is what happens.

  7. My 20 year old son borrowed about $2500 from his dad, my ex husband, with a verbal agreement for son to pay back. Son has had financial trouble due to losing job. Father is threatening legal action. Can he sue son for this? Son had every intention of paying back, but life happened. Mind you ex never helped with our kids financially, always behind on child support, and owes me thousands of dollars in his 50% of our children’s medical bills he was ordered to pay in our divorce decree, I haven’t had money to go after him, but he dares do this to our son? Advice please and thank you.