10 important tips for you that will lend someone money

Who has never lent or borrowed money? In times of distress, any help is welcome, and borrowing, whether from a friend or family member, is always an option not to get your name dirty. However, you need to be aware of some important points linked to any relationship involving the assignment of money.

That's why we present 10 essential tips for you that will lend someone money. The publication is based on an article on the Mental Floss website, which features the insights of Bruce McClary, vice president of communications at the National Credit Counseling Foundation, and Lynnette Khalfani-Cox, a personal finance expert. Check out:

1. If you want to lend to someone, ask yourself why

When someone borrows money from you, there are some reasons that make you think you should accept it. One is their possible adoration for feeling generous, in which case the choice is emotional. That is why Khalfani-Cox warns against caution and prudence, whatever the decision. Another situation is the fear that refusal will make a person seem less willing to help, selfish or not so trustworthy.

About this situation, the expert warns: “No relationship should depend on the person's openness to lend money; and if a 'no' is going to hurt that, maybe the friendship is not as strong as imagined ”.

2. Suggest an alternative

The important thing in cases that can shake the relationship is to demonstrate that although you do not want to lend, you care about the situation of that person who asked for the amount of money. Therefore, it is essential to be honest and to show interest by suggesting possible alternatives to the issue. Khalfani-Cox recommends, under one circumstance, that someone wants money to buy a machine to start a business, for example, say she can't help and ask if she has already considered renting the equipment.

3. Make a written agreement

No one lends money unpretentiously and, of course, expects at least to get back the same amount they gave. Therefore, it is important to be sure about this, and a very interesting way is to produce a written agreement. In this document you can include some clauses and details of the transaction, such as the amount, the repayment schedule, the possible consequences if the money is not returned, among others. McClary points out that signing a notarized contract is better for the deal to become valid and more enforceable.

4. Comment on the situation with your spouse

Avoid problems at home. If the amount to be borrowed is a significant amount, check with your partner to see if he or she agrees. According to Khalfani-Cox, there are many cases of shuddering relationships and friction created by undisclosed loans. She even mentions parents who have regretted giving their children money because of conflicts at home.

5. Don't Use Your Retirement Fund

According to Khalfani-Cox, this is one of the big mistakes you can make. Moving into any retirement fund to help a relative or friend is unwise. If you need to do such an operation, be aware that you do not have the money to borrow.

6. Don't stay on top of the money to control what is being spent.

While most people close to you will not lend their money to gamble, they may need to use a portion of the funds for a purpose other than the deal. You should not look into the situation in order to oversee what is being spent on. The personal finance expert points out that if this happens, there is probably a good reason on the part of the debtor and it is not his job to control his spending.

7. Set an interest rate

In addition to being a government requirement not to be considered a gift and thus charging improper fees, setting interest rates shows how seriously you are taking the loan, according to Bruce McClary. To do this, you must rely on current applicable federal rates, but generally lower amounts. Be aware of the need to be declared as income in your income tax, preventing it from being considered a gift.

8. Think Why You Were Chosen

You may wonder why from so many friends and financial institutions, even at similar interest rates, you were soon chosen. It may even be that you were not the first choice, and that certainly means something. As such, Khalfani-Cox points out that borrowing is already a problem, and if a bank possibly did not accept the transaction, it is because it did not consider the person a valid credit risk. So, if maybe not getting the money back causes you any bad feelings, rethink before lending any amount.

9. Make it clear when and how you want money back

McClary recommends putting these details in the contract, but as clearly and specifically as possible. Negotiate how the return will be made: if it will be paid in installments, with the lump sum, how long, the initial amount borrowed, how much is expected to yield at the end of the period, whether it will be cash or deposit, among others.

10. Say no without fear of being happy

Most people tend to try to help a bad financial situation from a relative or friend. But you should not feel obligated to lend money and you can refuse without fear. According to Khalfani-Cox, the mistake is to believe that the worst situation will be drawn by his refusal. “For example, if your brother borrows money from you to pay your cell phone bill so you don't have the line cut and you decline, there are some possible outcomes. He can ask someone else for help, get the money on his own, negotiate with the phone company or even have his cell phone cut off. That is, of four possibilities, three end in a positive way without you getting involved with the case, ”adds the expert.

Have you ever had trouble borrowing money from a relative or friend? Tell how the situation was resolved in the Curious Mega Forum