The decision on whether or not to help loved ones by lending can be tricky. This is because, at one side, you do not want to miss this opportunity to be with them during their tough times. On the other hand, you might doubt if they can return the money.

Extending a helping hand to the needy person is a noble gesture. It establishes your strong and everlasting bond with your near and dear ones. However, you must confirm if you are in a position to lend money to them or not.

For example, you have questionable credit scores and have payments of low credit score loans going on. In that case, you cannot take out money from your budget and help others. Doing so would mean you will fall behind the repayment schedule.

The very idea of recovering from a poor credit history will not work. Thus, lending when you do not have sufficient money will be foolish. Stay away from making this mistake as it will be perilous for your situation.

This blog lets you understand the hidden nuances that can play a negative role in your financial dealings with your near and dear ones.

Money and relationships are often a risky combination

Many people do not support the idea of lending or borrowing with relatives or friends. They imagine this step as a disastrous one from a different perspective. On the flip side, others might disagree with this point as they feel like assisting near and dear ones is one of their prime responsibility.

The debate can go on because of differences in opinions. However, you must not miss the valid pointers that can help you shape your perspective regarding this matter. Make your checklist by referring to the below points.

Terms and conditions might not be clear

When you decide to lend money to someone very close, you like to do it in an informal way. It is here you will be making the biggest mistake of your life. In fact, this is the biggest setback as people hesitate to define clear terms and conditions.

There is no problem if you hand over the money as charity. This way, you cannot claim to get it back from them. However, if they are offering funds to them as loans, you must specify certain terms and conditions.

Lack of it will trigger disputes, and it may ultimately result in no repayment. Therefore, forget about keeping things unclear between you and the recipient because of the relationship. A clear understanding will help you nourish your bond with your people.

No legal formalities

Another blunder that oftentimes happens when financial transactions happen between friends or family members. It is the lack of legal formalities because of hesitation. The borrower should be ready to agree to your terms and conditions, or else things cannot happen mutually.

Besides, if someone does not accept your requirements, it indicates the possibility of some problems in their financial life. When the transaction is protected with legal formalities, you must be ready for any mishap, as the borrower will be under no obligation to repay loans within the given timeline.

Both of you must sit together to have a friendly conversation about borrowing. You can discuss your conditions and their requirements at the same time. It will help you to agree to some common points like formal legal work.

Strain the relationship

It becomes an awkward situation when you decide to lend money to someone who is coincidentally weaker than you financially. Some other members of the family might observe it as a favour from your end. They might assume that you are doing this to establish your financial supremacy.

Besides, it becomes difficult for you to ask for repayment if that person does not deliver on time despite completing all the legal formalities. Although you know that late payment will be burdensome for them, you might hesitate to pressurise them to pay back money.

This type of situation may or may not occur depending on the financial behaviour of that person. If they are responsible for money, there is no need for you to follow up with them for repayment.

Ruin the reputation of the borrower

If the person who wants to help financially is very dear to you, borrowing can tarnish their reputation within the family. Such news never remains hidden and spreads speedily. Even though you do not want that person to go through this type of scenario, you cannot do anything in their favour.

Later, if they fail to pay the money back within time, more and more nasty conversations will occur. This will not be acceptable to many people. It is your duty to review if this decision of yours can have a reverse impact on their reputation.

The desire for more favour

Since that person is your family, they might not give due importance to repayment. They might even go out of their way to ask for more help from you. This might happen if they come to know that you are capable of helping anyone financially.

They might try to misuse the opportunity you have provided them. In this situation, if you surrender to their request, you will be making the biggest blunder of your life. The best decision at this stage will be to deny helping them with further money.

When you do this, you encourage them to ask for more. The worst part is that this process might repeat again and again.

The bottom line

You must understand how, beneath the surface of positive intentions, there might lie a layer of risk. It can ruin everything peaceful about your finances. In some situations, you might suggest some effective ways to deal with the problem.

If one of your relatives has left the job to continue further studies, they might additional funds. Advise them to apply for loans for young people. This option can solve their problem the way you might have done. There is no shame in being cautious about the moves you take concerning your finances. This way, you can be in a safer place as compared to risky decisions.

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