A Quick Guide for Giving Your Friends or Relatives a Cash Loan

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A Quick Guide for Giving Your Friends or Relatives a Cash Loan

When someone in your family asks you for a cash loan, what do you do? You have to give yourself enough time to consider your answer and options. You have to ask them what they need the money for and is there any other way you can help. If there isn’t and they are insisting on financial help, then you should read the following.

Deal with Cash Only
If a sibling asks for your credit card, forco-sign a loan, you need to step back. Don’t put yourself in a position where someone else’s actions will affect your financial stability. If you can control cash, and lending won’t affect your credit score, then you should only deal with the cash, or decline in a polite manner.

Consider Your Options
When you are lending money to something, you are impacting everyone else. Giving away cash loan to one, and not others can lead you in an uncomfortable position. This will be easily labeled as favoritism and enable.
So you have to consider how your actions will make others feel. For instance, if you are a parent and you are lending money to a child, it will be better if you have a family meeting and discuss the terms a bit openly. This way your decision will hurt no one.

Get Details
You don’t want to hurt their feelings; we get it. But when it comes to your finances and protection, there are a few rules you have to abide. You have to know what your money will be usedfor. A bank never blindly gives away money without knowing what it will be spenton. This is something you should learn from.
If the lender becomes offended by this, it’s a red flag, and you should back off. On the contrary, if you are provided the details, and it follows, then you should hesitate to help them out.

Interest
Charging interest to someone you know might seem pointless, but it’s for your protection. This will prompt the family member you pay you back in time and help you avoid from gift taxes on your money. If you lend more than 10k, you will have to pay a gift tax if you don’t make it seem like a loan with proper terms. If the amount is larger than that, then you better work with an accountant to protect yourself.

Discuss the Terms
Talking about the cash loan with family can be awkward, especially if you are in the position to lend, but glossing over the details is even worse. So, you have to clarify the amount you are being loaned with repayment terms and interest rate. You should also discuss late guess and print out the terms to avoid confusion in future.

Get A Written Form
A verbal agreement is considered legally binding but when it’s your word against someone else, and even if you abide by your loans, you can get in trouble. Therefore, you better have the details written with both parties agreeing to it with signature. It helps to prevent misunderstandings and protects you legally.

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