Questions to ask before lending money to friends - how much, for how long, under what terms...
Lending money to friends may seem a natural act of friendship and kindness, but if it is not handled properly, it can irreparably damage the friendship. The following suggestions will identify some common questions that should be asked before making a decision.
1. How much money is required and how will it be repaid?
A small amount of money will not often present any problems to the lender or to the recipient. It can help to provide temporary assistance until the money can be repaid. However, if a friend asks for a large sum of money, it will be necessary to tread more carefully. Rather than unquestionably handing over a large loan to a friend, it is best to sit down and work out a financial plan of action that will suit both parties involved.
Will there be a weekly or monthly payment? How much will this amount to? Writing down the details of the loan. Carefully stipulating all the terms and agreements will help to prevent misunderstandings or quarrels later on. It is also an important way to let the friend know that even though it is a personal loan, there is still an obligation to pay the money back in a timely manner.
2. Will the loan get in the way of the friendship?
Some people are surprised to see their friendship alter after a personal loan has been made. It may make the friend who provided the loan more suspicious and critical. They may even resent their friend when they see them spending money rather than repaying it. If this occurs, a friendship may very quickly suffer and even come to an end, as no one wants to be viewed with suspicion.
3. Non-payment
Unlike banks and credit card companies that are able to impose penalties for overdrafts and late payments, non-repayment from a friend can be much more difficult to deal with. Will the friend who lent the money be willing to relax the terms of the repayment? What if the friend has been declared bankrupt? Legal action will certainly end the friendship and it is bound to prove futile if there is no money available to repay. Another alternative is to write off the loan altogether.
Some friends choose to help out in other ways, because the risks of lending money are far too high for some to place their friendship in jeopardy.
