The Dos and Don’ts of Loaning Money

When it comes to loaning money to family or friends, things can get hectic. You want to help, but is the person reliable? Will you ever see your money again? If not, are you willing to end a relationship over money? Money can make people do crazy things, so when you’re loaning it out, take caution.

The CGS Team is sharing a few important Dos and Don’ts when loaning money out. If you can’t seem to make the decision to loan your money, read the tips below to help you figure it out. If you’ve already made the loan, read on for what to do and what not to do while waiting for your payment.

The Dos of Loaning Money

Do Consider the Impact

When you loan money to a friend or family member, consider the potential impact this will have on your relationship and the relationship with others involved. Will your other friends or family members get jealous? Will others start asking for money? If you don’t want others involved, make it clear to the person you are loaning the money to keep it between you both. Involving others can open the door for future problems.

Do Lend Only What You Can Afford

If you can’t part with money because of your own financial situation, then don’t be afraid to limit what you loan. Your friend or family member may need $1000, but if you can only afford to loan $500 then make that clear.

Keeping your own best interest in mind is very important when loaning money to others. If you loan more than you can afford, you may find yourself asking for your money back sooner than agreed to, paying late when it could have been avoided, or stressing out about money.

Do Get the Details in Writing

When you have agreed to the terms of the loan, make sure it’s finalized in writing. Include the name of the lender and the person receiving the loan, the date, the amount, the due date of full payments (or installments), and the amount/terms of any potential interest payments.

Once the details are in writing, each party should sign the document. A signature from each party indicates agreement on both sides and makes it a binding contract. Each person should keep a copy for their own records.


The Don’ts of Loaning Money

Don’t Micro-Manage

After you’ve loaned the money, it’s in your best interest not to worry about your payment until the agreed upon due date. Regardless of how the person is spending the money you loaned them and any they make is not your problem.

Obsessing over it can cause unnecessary stress and hostility towards to person how accepted the loan. Don’t ask how they are spending the money or if they will be able to pay on time, leave it alone for the time being.

Don’t Let an Issue Go Unresolved

If payment is not received by the agreed upon due date, then it is perfectly fine to start asking for explanations. Approach the situation calmly. Advise the person that you both had an agreement and their end of the bargain was not kept. Ask what they can pay now and offer to set up a payment plan.

If the person truly can’t pay, you need to decide if you want to pursue legal action or accept that the loan is now a gift. Not taking any action to address the situation will only produce negativity and could end up ruining a relationship. If you made sure to get the terms signed by both parties, pursing legal action will ultimately go in your favor.

Keep in mind, the costs of legalities is very high. Assess if it is worth the money that was loaned. Sometimes pride needs to be set aside. Accept that it was a gift and if you can’t continue a relationship with that person, let them know.

Related: 5 Ways to Approach Bank Loan

People get funny about money! Make sure that you are 100% comfortable before loaning any money out and be prepared for even the worst case scenario. Do you have any tips or experiences with loaning money? How did the situation turn out? What are your thoughts on loaning money to friends or family? We would love to hear what the community has to say about this topic, so leave a comment below!

-The CGS Team



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