Our life is unpredictable and this makes it very interesting and enjoyable. Of course some life’s twists and turns may bring challenges and negative experience. Money challenges are the most unwanted and it is very difficult to easily bridge them.
Modern economy suggests many options which help people in money need to solve their financial issues. You can go to branch of a bank or a credit union, or you can even use “borrow money” option often provided by personal loan lenders online. But taking out a loan is not as simple as it seems.
Borrowing Money from Close People or Banks?
Even if you make necessary estimation and calculation and decide that you are able to easily repay the loan together with the amount of interest it doesn’t mean that the bank will give it to you. You need to have a good credit history and to be lucky to turn to honest and reliable lender in order to close your money issue without additional challenges. Such uncertain situation pushes people to borrow money from relatives and friends. Besides, borrower hopes to get much lower interest rate, better terms and no hassle with credit score. But what if you are the one who is asked to lend money?
Of course, you can’t refuse from helping your close relative of friend especially when you possess the necessary amount of money. But from the other hand you can’t be 100% sure that you will get this money back on time. Besides, people who are turned down for a loan by official financial organization are not treated as reliable lenders and this is alarming. So it is the right time to think of ways to minimize the risk of not getting the lent sum of money back.
Ways to Safely Loan Money to Friends or Relatives
1. Make an agreement
Even if you 100% trust your borrower it is better to create a written agreement. Thus you will clarify terms and conditions that it is better for both of you. Borrower will treat the deal more seriously and you will not be bothered with uncertainty. Don’t be afraid to suggest the written deal. Just explain that all money issues should be treated seriously and it is important for you to feel the distinctness. Besides, you may assure the deal officially and this will help you to avoid many of possible problems in case your borrower refuses to give you the money back.
2. Negotiate about interest rate
It is not wise to lend interest-free money even to close people. You need to understand that $100 today and $100 in three years is not the same amount of money. This is called inflation and that means that you will be able to buy fewer things for the same amount of money after some time. You can find the inflation rate’s value on official sources and include it as an interest rate into the deal. In fact you will not gain any profit but you will not lose money at least.
3. Be careful with co-signing a loan
Co-signing a loan is also one option which may be used in order to bridge the money need. That means that you co-sign a loan with somebody and thereby become responsible for the loan repayment in case the second party fails to do this. Yes, you will have to return the whole amount of the loan with accrued interest and fees. Otherwise you will be held liable for the situation and your credit rating will be spoiled. So it is very important to think carefully when co-signing a loan.
It is great to help people who are close to you but don’t forget to do it wisely.