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Loaning Money to Relatives

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Oftentimes, family will financially support each other whenever there is an emergency. However, it can be difficult to expect it to be returned promptly. This is a guide about loaning money to relatives.
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August 2, 2010

When you live frugally and your relatives see that you are out of debt, they may ask to borrow money. Here are some tips for a successful loan. By successful, I mean that you'll likely be repaid and your relationship will not suffer.

  1. Ask what the money is for. You have a right to know, and you have a right to be judgmental when it's your money. Don't loan money for something you think is unethical or would be harmful to the relative.

  2. Don't loan money you can't afford to lose. If the relative doesn't repay you, you certainly won't take him to court. Don't take money out of your retirement fund or your emergency savings.

  3. THIS IS THE BIGGIE. Put the details in a written document. State who is borrowing from whom, the date and amount of the loan, and the repayment schedule and terms. Print two copies, you each sign both,and each keep a copy. What do you do with this document? NOTHING:vyou just file and keep it. The purpose is in the creation of the document. It avoids misunderstandings about the details, and it confirms to the borrower that you do expect repayment. Many people assume that "relatives don't really expect to be repaid", especially if they're borrowing from a parent or grandparent.
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  4. If they don't repay you, don't "dun" the relative about non-payment. Just write it off, chalk it up to experience, and don't loan to this person again. Don't hold a grudge. In other words, don't let the non-payment ruin your relationship. (Although it certainly decreases your respect for them, you can't help that.)
The only time I've had a problem with getting repayment from a loan to a relative was the one and only time I didn't create the written document.

By Charlotte Lenox from Waco, TX

Comment Was this helpful? 7

Comments

August 2, 20100 found this helpful

I don't loan money to anyone, especially relative! My sister owes me $250.00 today, which I know I will never get back. Just give them the money if you have it, and please don't give if you can not afford to part from it. Because relative will never pay you back.

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August 3, 20100 found this helpful

Charlie, this is excellent advice. And advice I wish I'd followed 18 months ago when we bought our own Christmas gift. Youngest son talked about what he intended to buy us new to sis, who told us. We got excited when we found the exact item at 1/4 the price and ran to tell son. He "didn't have the money then," so we bought the item with the verbal understanding he and fiancee (will be wife in 11 days) would repay.

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We're still waiting... or should I say, have given up waiting. :P
Sickandsexy, I'm sorry you've had bad experiences regarding family loans. Please don't take this to heart. We have several other children who are very faithful at repaying small loans. We've borrowed from them and repaid just as faithfully.

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August 3, 20100 found this helpful

I'd get really upset if a loan weren't repaid. I have loaned an item or two, and gotten them back damaged. So knowing myself. my policy now is either to GIVE an item or "Neither a borrower nor a lender be". It just saves me so much stress.

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October 8, 20120 found this helpful

Old saying: Never loan more than you can afford to lose. Once it leaves your hands, realize that you may never see it again.

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If you can live with that possibility, go ahead and loan it.

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