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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