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It’s hard to say no to loaning money when a friend or family member has fallen on hard times. Finances are a sensitive subject to approach with someone you care about, and you must protect yourself by lending carefully. The following is a list of do’s and don’ts to ensure that you don’t regret extending a helping hand when friends or family need money.

Do Only Lend to People You Trust

Major lenders such as banks often require a credit check, income verification, and references before providing any individual with a loan. When approached by a friend or family member, it would be foolish to hand out money without considering their trustworthiness. It’s a good idea to look for some type of collateral so that there is some security. Otherwise, you risk being left empty-handed if they bail on repayment.

Don’t Put Yourself In A Bind

Never agree to let someone in your life borrow money if you can’t get by without it. Do the math ahead of time to make sure that you aren’t overextending yourself into a financial bind. Although you are putting faith in your friend or family member to give the money back, there is always a chance that they will not reimburse you.

Do Create a Contract

A person who approaches a friend or family member for money is taking advantage of the opportunity to avoid a lengthy loan process. It’s smart on your part to create an agreement about repayment terms, no matter how small the amount. This contract will protect you if you need to take legal action in the event of non-payment.

Don’t Give Into Pressure

Don’t be afraid to say no, even if you have reason to believe that it will lead to some strain on the relationship. The individual who inquires about a personal loan has likely exhausted other options before approaching you. As they feel pressure to get ahold of emergency money, they may try to talk you into an agreement you don’t want to make. You are only responsible for your finances, and no one can force you into loaning money if you feel uncomfortable for any reason. 

Do Consider Your Credit

Cosigning is a great way to help someone without actually putting up some of your own money. Unfortunately, this does come with the potential cost of damaging your own credit score if something goes wrong or if they decide to stop making payments.

This blog/website is only made available for educational purposes. It is designed to give visitors general information and a general understanding of select financial topics. It is not intended to provide specific financial or investment advice. Conduct your own due diligence or consult a licensed financial advisor/broker before making any and all financial/investment decisions.